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Opinions of Wednesday, 20 August 2008

Columnist: Frimpong-Manso, Kwadwo

Sale of GT is Long Overdue

Parliament has approved the sale of 70% of GT to Vodafone, putting an end to the circus of ignorance, misplaced nationalism and political opportunism that has been so much on display lately. Of all the voices raised against the sale, the most opportunistic was the statement issued in the name of Prof. Mills. In a bare-faced attempt to score political points, Prof. Mills threatened that if elected he will reverse the sale and prosecute all those who in the exercise of their public duties, facilitate the sale. This posture would be ridiculous even if Dr. Mills had not been personally involved in a prior sale of a minority stake in the same GT to an entity in Malaysia. Prof. Mills owes Ghanaian an accounting of what happened to the proceeds of 30% of GT to Malaysia, which he personally was involved in. I’m not suggesting that the proceeds were misappropriated but there have been statements by well placed sources, which the NDC administration never denied, that the NDC did not invest the proceeds of the sale in GT at all. Prof. Mills has the opportunity to clear the air on this one.

For those against the sale, the argument can be reduced to these: (i) GT must not be sold because it is a national asset; some say a “strategic” national asset. Those who raise this argument add that the sale includes the transfer of the fiber optic infrastructure to Vodafone and there is no guarantee that Vodafone will develop the network or extend telephone or broadband service across the country. The second argument against the sale is that at $900 million GT is undervalued. Others question the government’s motivation because in their view, if the government meant well, it could have offered GT to the Ghanaian public. Finally, there is the purely political argument with the usual socialist undertones. By selling GT to a foreign entity, the argument goes, the government is facilitating a recolonization of the country. None of these arguments militate against the sale of a perennial nonperformer that has not returned a penny to its owners in some sixty years.

As for the argument that GT is a national asset or “strategic national asset” we heard the same with regard to Ghana Airways. Being a “strategic national asset” didn’t stop us from running Ghana Airways into the ground. When Ghana Airways collapsed we didn’t get a penny for our troubles. On the contrary, several hundred employees lost their jobs and taxpayers were left holding the bag as creditors seized Ghana Airways’ properties. There is nothing strategic about a national telephone company which after more than sixty years of operation (yes, GT predates Ghana’s independence) has a fixed line subscriber base of a mere 375,000 to show for the billions of cedis invested in it by successive governments. As of May this year alone the government has provided $199 million to keep GT afloat. How long should this hemorrhaging continue before taxpayers say, enough is enough? And it is not like there is no demand for fixed line telephones in Ghana. I applied for a fixed line telephone for my house in Kumasi nearly three years ago. After countless visits, GT gave me a phone number six months ago, asked me to pay the required fee, and assured me service was finally around the corner. I promptly paid the fee but I’m no closer to getting service today than I was two years ago.

GT is not a going concern and hasn’t been for years. Put in layman’s terms, GT doesn’t have money to pay its employees’ salaries; it cannot maintain or buy new equipment; and it certainly doesn’t have the resources to expand its coverage or improve its service. In any other system, GT would be under receivership. In Ghana it is not because the hapless taxpayer pays to cover GT’s operating expenses. Any organization that cannot pay its way or improve its services or expand operations is headed one way – to dissolution. Which in GT’s case would mean the loss of over 4,000 jobs. Just ask the staff of Ghana Airways. GT’s employees, both senior and junior rank, know something about the decay at GT and are crying out to the country to let Vodafone bail out GT. Are they all unpatriotic sellouts? Or do they know something critics of the sale don’t?

The argument that GT is undervalued is a valid one, but that’s as far as it goes. I work for one of the world’s largest financial services organizations. The IT budget for this company alone is approximately the size of Ghana’s total annual budget. However, this company is not publicly traded and therefore nobody knows its actual value. Of course, the value can be determined but it won’t be as precise or as easy as determining the value of a publicly traded company. Then again business valuation, like beauty, is in the eyes of the beholder. Take the case of Microsoft’s recent offer to buy Yahoo. Microsoft offered to buy Yahoo for $44.6 billion or $31.00 per share. The offer represented a 62% premium over Yahoo’s closing price the day before the offer. Microsoft eventually increased the offer to $50 billion or $33.00 a share. Yahoo’s board balked because the price did not reflect Yahoo’s “true value” in the marketplace. Whatever happened to market capitalization as indicia of value? On Friday, August 15, 2008, Yahoo’s stock closed at $20.44 per share. Go figure!

Which brings us to the principle underlying all asset sales, whether we’re talking about a car, a house or GT – an asset is worth only what a buyer is willing to pay for it. We can place any valuation on GT that catches our fancy but at the end of the day what counts is what some buyer is willing to pay for GT. No venture capitalist is going to invest money to prop up GT’s balance sheet and improve the infrastructure or expand its operations with a minority stake. You do that for a going concern, not for a moribund state enterprise that can’t pay employees’ salaries. That’s just a matter of business sense.

So far none of the people who are arguing that the government is selling GT to Vodafone at a fire sale have put a value on GT. They have put forward no analysis of GT’s assets or business plans or market projections to justify their argument that the sale price is inadequate. They just have a hunch that $900 million is not enough. Only in Ghana is hunch a substitute for market information.

As for those who argue the government could have offered GT to the Ghanaian public, well, the government did. Nobody has challenged the statement by the minister of communications that the government in July last year advertised in Ghana and abroad for “expressions of interest” for the sale of GT to which 17 companies responded. Ghanaians slept through it all because the presidential campaign had not started.

Ghanaians can be forgiven for seeing all those mansions and late model luxury cars and thinking Ghana is awash in venture capital. The reality is that after 17 long years, the total capitalization of the Ghana Stock Exchange inched close to $18 billion as of August 4, 2008. Modern Ghana News attributes the growth to what it calls “significant offshore investments.” If you follow the information trail from the Bank of Ghana you also know that the bulk of money fueling the stock market as far as the banking sector has come from Nigerian and other foreign sources. Where is all that local, read Ghanaian money when foreigners snap all those bank shares even though the banking sector has been the main engine fueling the growth of the Ghana Stock Exchange over the past five years? If Ghanaian can’t or won’t invest in a known winner how does one expect them to pour money into a certified loser? There is no need to spend a lot of time on the argument that selling GT to a foreign investor amounts to inviting the colonialists back. Much has been said about the fact that at the time of independence in 1957 Ghana was roughly at par, economic development-wise, with Malaysia and Singapore. Today, those two countries are two of the pillars of the so-called Asian tigers. While we go round the world’s capitals cup-in-hand pleading for handouts to balance our budget, Singapore commands one of the world’s largest sovereign wealth funds with assets in excess of $100 billion and is fast overtaking Hong Kong to be the world’s fourth largest financial center. Singapore didn’t get to where it is today because God was kinder to the city-state. They opened their economy to “exploitation” while we closed ours because everything foreign was “colonialist” and/or “imperialist.” Critics of the sale of GT to Vodafone seem stuck in the 1960s. The reality is that foreign aid has not raised any country’s gross domestic product one notch. It takes private capital with all its ugliness to develop an economy. Look at China and Russia today and then look at North Korea. China and Russia saw through the emptiness of socialist sloganeering and opened their economies to participation by the same “capitalists” and “imperialists” they spent decades maligning. In just about ten years, foreign participation (like what Vodafone is doing in Ghana) has catapulted China’s economy into the word’s third largest after the U.S. and Japan. By contrast, North Korea with its closed Stalinist economy relies on foreign handouts to feed its people. We can be like China or we can be like North Korea.

Back to Vodafone and GT. When the sale is consummated, Vodafone isn’t going to cut up GT for scraps and ship it to the UK. Vodafone is buying 70% of GT because there is money to be made. But as every market women in Ghana knows, it takes money to make money. Vodafone operates at such a scale that it can’t make money operating 375,000 fixed lines. The argument can be made that part of Vodafone’s strategic calculation in purchasing GT may be to prevent GT from falling into the hands of a competitor. Fair enough, but Vodafone’s mission is to increase shareholder value and the only way Vodafone can justify the $900 million investment is by modernizing GT’s equipment and infrastructure and expanding its coverage and product offerings. That will be a win-win for all. The Ghanaian taxpayer gets the 800 pound gorilla off its back, which frees up money for more worthy projects; we preserve the jobs of GT employees and perhaps hire more; I will finally get my telephone at home with improved service and Vodafone will have some profit to report to its shareholders. The sale of GT is years overdue.

Kwadwo Frimpong

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