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07.01.2006 Feature Article

Ghana and management contracts:

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A case for GT, Ghana water Company ltd and Ghana air? Since the inception of the NPP regime, the government has turned to foreign management firms as a management solution for enterprises in the red or next to bankrupt. A few of them are Ghana Telecom which has gone through to management groups Malaysia telecom, which ended up in the International courts after ending acrimoniously, then at present Telenor from Norway.. The Ghana Airways went through a lot of management groups both locally and internationally till it went solvent and then a new joint ventureship and management group from US took Over. At present this talk of a Uganda, South African and Ghanaian partnership once again. The list goes on and on with the port and harbours, the Rail sector which ended up in a bidding war and total chaos.
I have done some comprehensive research on countries that have taken this route and will try to share this with all our readers.
A management contract is an arrangement under which operational control of an enterprise is vested by contract in a separate enterprise which performs the necessary managerial functions in return for a fee. Management contracts involve not just selling a method of doing things but involves actually doing them. A management contract can involve a wide range of functions, such as technical operation of a production facility, management of personnel, accounting, marketing services and training.
There has been a lot of criticism from the Civil society and professional bodies in Ghana for the NPP government going for this approach. For them it's a great disrespect for local personnel, and expertise. The Civil society representation and ISODEC officials have made some very stunning statements like” if Ghana can not produce good managers then why not close School of Administration in Legon, GIMPA and IPS?” The Ghana Architecturers Association has also said the Ghana Water company Limited management could not deliver a great performance because of political interference. He was quoted as saying “a major problem that had affected the efficient and effective operations of GWCL was managerial and that was why the urban water project contract was entered into to improve the situation“.
These statements have came about as a result of a statement or press release by Mr Hackman Owusu-Agyemang, Minister of Water Resources, Works and Housing announced this at the weekly meet-the-press series in Accra . He said the management of Ghana Water Company Limited (GWLC) is to sign a management contract with two foreign firms this week to pay off more than 600 of its workers who would be laid off.
The 10.950 million Euro contract between GWCL and the firms from South Africa and the Netherlands inclusive of taxes is a grant from the World Bank.
Another enterprise under management contract is Ghana Telecom. Even though there has been profound improvement in its performance, there has been controversies and war of word between stakeholders in the telecom industry who believe Telenor Norway management could do better.
I have copied an open confrontation between Ghana Telecom Official and the national regulator, National Communications Authority, NCA officials which occurred on the print and electronic media.
“On 17 November 2005 - Ghana Telecom (GT), the leader in the fixed line industry, has seen stunted growth currently and is struggling with a debt of over ¢203 billion to other GSM providers. The company is currently staggering towards bankruptcy and unless an economic resuscitation comes its way, it may soon go down into oblivion. The company is currently trading accusation with the national regulator, National Communications Authority, NCA, on the causes of Ghana Telecom's problems. In a statement issued by the NCA, the Authority accused GT of being its worst enemy. According to the NCA, the factors responsible for the GT's indebtedness are there for all to see.
It said GT sold its minutes (domestic and or international) at rates lower than agreed interconnect charge. The statement said the company lacked the appropriate systems to collect payments from its subscribers (domestic or international) for services rendered. It further blamed the situation on internal fraud and lack of internal managerial systems to mitigate or eliminate those fraudulent practices particularly in international call termination. But the GT management thinks otherwise. The head of Corporate Affairs of the company, Mrs. Afua Asabea Yeboah, in a 'Daily Graphic' publication, disputed all the claims of the NCA. She said the NCA was responsible for regulating tariffs and had never approved realistic rates for the company. She further blamed the company's inability to collect its debts on poor address systems, saying 'it is not easy collecting our debts because some customers refuse to pay and cannot be traced due to poor address Systems in the country."
The government of Ghana in 2001 terminated the then management agreement with Telecom Malaysia, replacing it with that of Telenor, a Norwegian company, which is expected to turn the company around and bring it back into the competition. Today, GT is haemorrhaging, resulting into a debt of about ¢194 billion to Scancom, ¢9 billion to Millicom, operators of Buzz and ¢300 million monthly to Kasapa .It is time for the GT management to stand up to the task to show the stuff they are made up of before things go overboard.
For me, I am for the concept of management contracts. It does not matter whether its local or foreign expertise, what matter is the efficiency, productivity and the growth we all expert to achieve. My only concern is if the contract goes to a foreign firm there should be a very good crop of local expertise who will work with the management to be groomed to take over gradually when the foreign contract is over. The NPP government did not learn from the same contract awarded to a British firm in Ghana Airways. After the contract expired , it was not renewed because it was deemed to have been undermined by the Ghanaian officials who did not agree with the actions of the foreign bosses and thought they were better to management Ghanair. At the end we learned nothing and earned nothing, the result was Ghanair went red and liquidation.
Management contracts have been used to a wide extent in the airline industry, and when foreign government action restricts other entry methods. Management contracts are often formed where there is a lack of local skills to run a project. It is an alternative to foreign direct investment as it does not involve as high risk and can yield higher returns for the company
I do not agree also with the views of the civil Society Groups and the Ghana architecturers Association because their arguments are based on emotions and sentiments not firm ideas and smells of naivety.
The truth is we need all the above mentioned institutions but the standards needs to be improved drastically, we need to expose our graduates through internships, attachments before and after school. We need to change the Syllabus and incorporate, leaders, human relations and work ethics that matches current international standards.
Management and regulatory contracts do a better job of improving performance than contracts with public managers. One reason for this is that private owners and, to a lesser extent, private managers have a greater stake in the outcome of the contract than public managers. They have a greater claim on enterprise returns if performance improves, and they stand to lose if things go wrong. If the private party has its reputation at stake (as with hotel management chains), the incentive to improve is even greater. In contrast, public managers in our sample were not penalized for poor performance and were seldom rewarded for good results.
Why cant our local managers deliver results because of political interference? We have enough precedents to show that the local expert will listen to and tolerate political interference even if he knows the ideas are not good because he wants to safe his job, he fears for his life, does not want to offend the political order. We can give examples where unqualified people have been employed because a government official says so. Haven't we seen local Black star coaches pick players because a newspaper or a minister says so, have nt local coaches ,managers worked for firms without contracts? The opposite is the case for foreign experts, that is why they get results. We need to say we quit because there is an interference from the government or minister, or expose them for doing so!
My advice for the governments of Ghana will always be simple you can go for management contracts.Contracts are successful when they effectively address three problems: information, rewards and penalties, and commitment. Information problems arise because contracting agents (government, on the one hand, and public or private managers or owners of a monopoly, on the other) have different sets of information. Thus, each side can use the information it holds exclusively to improve its position at the expense of the other. Competition is one way that governments can muster more information about managerial performance, since they can compare a firm's performance with that of its competitors.
Even though information problems can be alleviated, it is impossible to design a contract that will cover all eventualities. That is why contracts usually include promises of rewards and penalties to induce the contracting parties to reveal information and comply with contract provisions. But promises of rewards and penalties alone are not enough. Each party needs to be convinced of the commitment of the other to honour its promises, even as circumstances change. This problem is especially acute when the government is a contracting party, since there is usually no way to compel it to meet its promises. By specifying a neutral mechanism for conflict resolution and placing checks and balances on its discretion, the government can signal its commitment to bind itself and its successors to the contract. Thus, contracts that provide strong links between the parties--including effective mechanisms to handle problems arising from information, rewards and penalties, and commitment are more likely to be effective in attaining improved enterprise performance than those that do not.
Colour or just being a foreigner should not influence who we give contracts neither should there be kickbacks but sole by expertise and the need to achieve results. We Ghanaians should also back good deals even if foreign and not undermine and backbite because of their salaries or benefits .We all need Ghana to move forward and fast because as we all agree we have no excuses not to. Kwadwo frempong, Trade Policy Analyst Views expressed by the author(s) do not necessarily reflect those of GhanaHomePage.


Kwadwo Frempong
Kwadwo Frempong, © 2006

The author has 6 publications published on Modern Ghana. Column Page: KwadwoFrempong

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