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Opinions of Friday, 18 July 2008

Columnist: Nelson, Ekow

Invitation to re-colonize - Is Ghana for sale?

n a report published on Ghanaweb on 14th July 2008 (“NPP has "poverty of vision” – CPP”, 14th July 2008)), Dr. Nii Moi Thompson is reported to have lamented about the state of our nation rather elegantly and appositely thus: “...our national football team never entrusted to a Ghanaian, our water is in the hands of the Dutch, our roads are built by the Chinese, Presidential Palace built by Indians, waste by the Belgians, and our Telecom sector is now earmarked for an Anglo-American company.” I couldn’t agree more since for much of the past week I have been in total despair about the future of our nation. From our roads to Ghana Telecom, there seems to be no end to the constant assumption informed by an ideological reflex that we are incapable of doing anything for ourselves and that the only strategy in town is to mortgage our country’s future to ‘strategic’ foreign investors. Fifty years after independence this is very distressing.

It all started a few weeks ago when I came across an advertisement by an NGO in the Financial Times of London which went along the lines of “a donation by you [the reader] will ensure that a young boy in Accra, Ghana receives an education”. The NGO went on to say they’ve been running educational programmes for the young and destitute in Accra of some time now, whereupon I asked myself : what on earth is going on in my country?

A few weeks later, I saw an advert by the Government of Ghana (GoG) in the classifieds section of the Economist (see http://www.economist.com/classifieds/view_ad.cfm?sitd=7126&sitd_type=T) inviting interested external operators to participate in a 25-year concession to construct a 230km dual carriageway between Accra and Kumasi as part of the Public-Private Partnership scheme. Curiously, according to the advert, “the GoG has commenced design and construction of the dual carriageway between Accra and Apedwa, and between Konongo and Kumasi using funds that it has already secured. However, the design and construction of the middle section of the dual carriageway between Apedwa and Konongo will be the responsibility of the concessionaire.” Despite the public investment made thus far, however, “the entire 230km length of the Accra-Kumasi road (including the middle section to be constructed by private operators) will be handed over to the private operators to manage…” ; the operator will also be allowed to charge tolls over the entire stretch of road. Phew!

I wondered why we were surrendering not only so-called non-performing assets to foreign-owned operators but have abdicated responsibility for investing in our own future development. During the 25 years of the concession, the poor traders, farmers and local residents of Konongo, Apedwa and Kumasi will pay a toll each time they use the road so that foreign investors, who only funded the middle section of the road, can recover their costs plus a rate of return that must be higher that they can obtain elsewhere for the same level of investment. Why must this be so?

In despair I fired off a note to a few friends with a blithe rhetorical question about what the people of Konongo did 200 years ago. One of the recipients responded with two examples not from 200 years ago, but as recently as the 1920s. He wrote: “when road mileage tripled 1921 – 1930 in the then Gold Coast, the feeder roads were almost wholly constructed by the farmers themselves. Sir Alexander Ransford Slater (Governor from 1928-32) acknowledged the work done by his predecessor Sir Gordon Guggisberg (Governor from 1919-1927). In his address to the Legislative Council on February 17, 1930 Slater said: “except in the most remote parts of Northern and Western Ashanti, almost every village is connected by its own motor road with the main trunk roads, and head carriage is now a rare sight. The village feeder roads have been constructed by the chiefs and people on their own initiative and at their own expense”.

The second example was from 1923 when apparently, “the people of Kwahu raised £5000 from their own resources, engaged an Italian contractor to ‘blast and link a motor road up the hitherto unconquered Kwahu scarp’. Guggisberg personally drove an American Dodge vehicle up the mountain to present to the chiefs and people of Kwahu assembled at Atibie, in appreciation of their incredible self-help.”

What on earth has happened to this spirit of self-help and self-reliance? Do we, a nation of 23 million people with a GDP circa US$15billion, need a foreigner to contribute a part of the US $400m to build the middle part of a dual carriageway from Apedwa to Konongo and in return exact tolls from us for the next 25 years? If we need this road, are we incapable of making this investment ourselves as the resourceful people of Kwahu and Western Ashanti did in the 1920s? What is this obsession with foreign investors building everything from our stadiums to manufacturing national award medals?

Let’s be clear: there is nothing wrong with procuring external, even foreign, expertise as the people of Kwahu did by contracting an Italian engineering firm in 1923. But they raised their own money to pay for the service and there is everything wrong with expecting others to invest in and own our future while we become ‘renters’ of their services. Mattel and Nike may outsource manufacturing to China and India respectively but they are not owned by their Chinese or Indian suppliers. IBM and Oracle may outsource IT development and support to India but their customers, markets and products are not owned by their suppliers. Any attempt therefore justify the government’s policy on the grounds of globalization is both incorrect and ignorant. But the government persists.

Only a few weeks ago, the government of Ghana announced it had “reached an agreement with Vodafone, the world's leading mobile telecommunication group, in a partnership deal for 70 per cent of its shares in Ghana Telecom.” (See Ghanaweb, “Government announces agreement with Vodafone”, July 3rd 2008). In return for US$900m, Vodafone will not only assume control of OneTouch (Ghana Telecom’s mobile arm), but also, ownership of Ghana’s fixed telecom network (both core and access) will be transferred and with it, monopoly over the provision of international, long distance telephone and fixed broadband services.

The sale of Ghana Telecom has been on the cards for sometime but after the initial process was halted ostensibly because France Telecom’s bid price was below the government’s expectations, one would have thought that when the process was re-opened, the likes of Portugal Telecom (PT) – who were involved in the earlier round – would have been invited to re-bid. According to a GNA report on Ghanaweb, however (see “PT still eyeing Ghana Telecom”, July 11th 2009 available at http://www.ghanaweb.com/GhanaHomePage/NewsArchive/artikel.php?ID=146692), PT were not contacted after the earlier selection process was suspended at the beginning of the year. This, despite the fact that it met the criterion of a ‘strategic investor’ with “more than a million fixed subscribers and six mobile clients”

There are precedents here of course. Back in August 2005 Ghanaweb reported that the Government had “decided to award the contracts for the rehabilitation of venues for the 2008 African Cup of Nations to a company, which did not bid for the projects. (See “Bid Process Cancelled”, Ghanaweb Sports News, 25 August 2005, available at http://www.ghanaweb.com/GhanaHomePage/NewsArchive/artikel.php?ID=88677). After putting the building of the new stadiums out to tender “[t]he government [set] aside the 7-month-long bidding process, which was meant to conform to the new Procurement Act passed recently by Parliament, and decided to award the contract to a Chinese construction firm.” According to the report “[t]wo companies had initially been selected to undertake the projects. But officials of the local organizing committee ….[said the] government … changed its mind because the winning bidders … presented estimates, which [were] too high.”

Later, the decision to abrogate the open procurement process was justified on the grounds the Chinese were renowned for their expertise in building similar stadiums around Africa and elsewhere, along with other complex civil engineering constructions which begs the question: why was a public procurement process initiated in the first place if we knew what the answer should be?

Before the debacle over the new stadiums, however, there was the furore over the sale of Ghana Airways. In 2004, the government asked the accountancy firm PricewatehoureCoopers (PwC) to evaluate proposals from organisations and consortia as potential partners to bail out the ailing Ghana Airways from its financial and operational difficulties. According to a Chronicle report published on 7th September 2004 (see “Untold story of GIA's 3rd to 1st position”, available at http://www.ghanaweb.com/GhanaHomePage/NewsArchive/artikel.php?ID=65549), PwC concluded that “that the proposals from the Consortium of Fidelity Group, Kenya Airways and KLM dated October 2003 and entitled “Ghana Airways restructuring Proposal” achieve[d] the best fit with the evaluation criteria set by the Ghana Airways Board”. The other three proposals evaluated by PwC were from Ghana Air Partners, Corporate Trade Solutions and Ghana International Airline (GIA). Needless to say, the government decided to award the contract to GIA - whose proposal was ranked third by PwC - ostensibly, we were told by the Ministry of Transport, because they were “willing to take risks” – which surely must have come as some sort of comfort for those who use its services indeed!

But there is a pattern emerging here: when an open and transparent procurement or evaluation process does not yield the answer the government likes, it abrogates it and appears to impose its own solution, often against the public interest. This is exactly what appears to have happened with the recent sale of Ghana Telecom to Vodafone.

As with Ghana Airways, justification for this is that the government wants ‘a strategic investor’ - whatever that means. One would assume that it means the government is not interested in private equity finance but in investors who are likely to develop and enhance the asset and contribute to the overall development of the specific sector of the national economy. However, investing companies like Vodafone have only one remit and it is, quite rightly, to their shareholders. What is strategic to them is a return on their investment greater than their cost of capital.

Ghana Telecom’s 1.4 million mobile customers represent just over 0.5 percent of Vodafone’s global subscriber base of 260 million. How strategic is that for Vodafone? Even if we achieved 100 percent mobile penetration with a relative small population of 23million people (which is less than 10 percent of Vodafone’s subscribers) Vodafone’s stated target market share of 25 percent will only represent 2.2 percent of its current total subscriber base and that won’t be achieved for another 5 years at least. To the extent, therefore, that this is strategic for Vodafone it must be as a beachhead for further and greater expansion of Vodafone’s interests across the sub-region.

Much of the sub-region, however, is French-speaking and given the hold France has over many of these countries, France Telecom/Orange are probably better-placed to dominate in those markets. Vodafone itself has struggled to gain a foothold in France; it has held a substantial but minority stake in SFR France for a long time, but it has been unable to secure controlling interests to date. So it remains to be seen whether or not this turns out to be as strategic for Vodafone as the government assumes it will be for Ghana.

But is it really strategic for Ghana to hand over its fixed telecom network to a company which although is the world’s largest mobile provider by revenue, has relatively little experience of running or investing in building fixed telecom networks anywhere in the world? What exactly will Vodafone bring in terms of deep and in-house experience to this business? Yes, in December 2007 Vodafone acquired the assets of Tele2, a fixed telecom operator in Spain and Italy and it has minority interests in Arcor (the German fixed telecom operator). It also provides fixed broadband services in other countries but mainly as a virtual operator using the facilities of the local fixed incumbent. However, fixed telecom services contributed less than 6% to Vodafone’s total service revenues of some £33Bn (US$66Bn) in 2007/2008. The share price, profitability and much of what matters to Vodafone’s shareholders are dependent on its mobile revenues and properties and not its fixed telecom, broadband assets or operations. Fixed telecom services are therefore not as strategic to Vodafone as its mobile assets although they clearly see it as complementary. This has a number of potential implications: (1) if push comes to shove Vodafone can and will jettison that part of the business (2) that part of the business is unlikely to be prioritized for significantly more investment going forward, especially in a place like Ghana where the fixed infrastructure is woefully under-developed.

As we move inexorably toward the digital world, broadband will become strategic for all economies. Today, Ghana Telecom’s broadband reach is limited indeed, primarily to a couple of metropolitan areas and it will be in dire need of further investment if we want to extend that reach to many more of our fellow citizens. The rapid diffusion of internet services in mature economies over recent years has been driven largely by broadband but we are also learning that with increased speeds, our appetite for greater bandwidth consumption is becoming voracious which in turn increases the investment required to upgrade and extend the network . But at the best of times, broadband business cases are hard to justify which is why in places like Singapore, Korea and Japan governments are taking the lead on these investments. I do not expect Vodafone to invest in the extension of broadband in Ghana beyond where it is profitable and much of that will depend on regulation if the current deal stands.

The government’s e-government and other ICT initiatives for our schools, hospitals and much of our future economy will depend on a robust broadband infrastructure. Yet this single most important strategic asset has been handed over to Vodafone which has by default become a monopoly provider when few, if any, competitive alternatives exist. We are proposing to transfer a public monopoly to a private one and that cannot be good for the future of our country.

What people forget is, as the so-called Negroponte flip (posited by Nicholas Negroponte, Director of MIT's Media Lab, who argued that over the long term, services that used to be delivered by wireless (e.g. radio and TV) will go over wireline (i.e. broadband) and what used to available only by wireline (i.e. telephone) will be will accessed wirelessly (e.g. voice calls via mobile)) becomes a reality, power shifts from traditional broadcasters and telecom operators could become important in the delivery of broadcast services. Many of us already listen to our favourite Ghanaian radio stations from JoyFm, to Peace and Adom FM over broadband. As telecom operators deliver TV and other information services – as they already are in many countries around the world - any future national emergency will not only require that the state takes control over Broadcasting House, but also of all telecom network operations centres. With this new reality in mind, do we want to handover our national common carrier to a foreign-owned company?

This deal will not pass in most economies; not in Britain where the monopolies and mergers commission will rule the fixed telecom portion anti-competitive or in Canada, much of the European Union or the United States. Many countries impose strict limitations on the ownership of telecommunications and broadcast services in part because they are deemed a critical public utility, integral to one’s sovereignty - and for the security reasons I have hinted at above. In the United States, Section 310 of the Communications Act of 1934 (amended by the Telecommunications Act of 1996) imposes foreign ownership restrictions on U.S. broadcast, common carrier, or aeronautical radio station licensees. According to the Federal Communications Commission’s (FCC) guidelines on foreign ownership, Section 310(b)(2) of the Act specifically “prohibits a foreign corporation from holding a broadcast, common carrier, or aeronautical radio station license”. The FCC is clear that the “prohibition is absolute” and it “has no discretion to waive it”. Section 310(b)(3) of Act limits the holdings of foreign corporation to no more than 20 percent of the “stock of a broadcast, common carrier, or aeronautical radio station licensee.” Under Section 16 of Canada’s Telecommunications Act of 1993 a company is eligible to operate in Canada as a telecommunications common carrier only if it is a “Canadian-owned and controlled corporation” and by that they mean 80 percent of the shares are owned by Canadians and an equal proportion constitute the board. In India, where Vodafone purchased Hutchison Essar, the majority of the Board of Directors, including the Chairman, Managing Director and Chief Executive Officer must be resident Indian citizens as should the Chief Technical Officer and Chief Financial Officer.

Furthermore, in the United States, any such sale of a common carrier, especially one that enjoys near-monopoly over international, long distance, and broadband services will be subject to Department of Justice reviews for its antitrust implications.

I have few qualms about spinning off the mobile arm of Ghana Telecom (OneTouch) since we already have a thriving and competitive mobile telecom market. However, we do not have a competitive fixed telecom market so to pass on that monopoly over long distance and international telephone services and most of all, the future of broadband, to a foreign commercial company makes little sense and in time we may come to regret this decision. This issue is far too serious to be nodded through by parliament without serious debate and detailed scrutiny. There should be no rush to close this deal. Ghana Telecom is not a drain on the nation’s resources and US$900m between now and the elections will make no difference. Parliament should take its time and not rush to any decisions until after the next elections. Ultimately, for competitive and national security reasons, I would urge parliament to reject the proposed sale of Ghana Telecom as currently packaged and ask the government to think again about the structure of the deal and critically about spinning off OneTouch and leaving Ghana Telecom Fixed in public hands until such time that it can be restructured and a competitive fixed telecom environment can be created - notwithstanding previous and failed attempts for example, through the establishment of Westel as an alternative fixed telecom provider - to deliver value and choice for consumers. The time has come for the government to begin to consider more seriously, alternative capital raising avenues for all future capital projects and sale of national assets, including the dual carriageway between Apedwa and Konongo as well as Ghana Telecom. It is time we brought an end to this reflex of wanting to sell everything including our future to foreign investors who then charge us to use them for eternity. It is neither sensible nor is it a sound way of securing our future. When the United Kingdom government privatized British Telecom in 1984, it did not look for a strategic investor; rather it issued stocks, most of which went to institutional investors (who manage investment portfolios and pension funds on behalf of a large number of British citizens and workers) and a substantial part were allocated to ordinary members of the public. We should give Ghanaians and Ghanaian institutions the opportunity to invest in building their own country which they have so often been denied by this NPP government. The chiefs and people of Kwahu did it in 1923; surely in 2008 we who are better endowed can do it too!

© Ekow Nelson 15th July 2008, London Ekow Nelson
15th July 2008, London