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19.02.2006 Feature Article

Rolling Back the State or Pushing up the State

Rolling Back the State or Pushing up the State
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...Dirigiste Economies at play in Ghana's Telecommunications Environment. Is the Ghanaian government on a shopping spree? Or is the Bretton Wood Twins -World Bank/IMF- star pupil on liberalization and market reform in Africa suddenly doing a turn around at the point of intercession between state and market? Recent developments in Ghana's telecommunications sector raises cause for such alarm.

In a massive reversal of policy on market reforms, the government has announced to the country the 100 percent acquisition of the country's only two fixed telecommunication operators- Ghana Telecom (GT) and Western Telesystems (WESTEL) by the state.

Figures making the rounds of IT gossip in Ghana say the government of Ghana (GOG) paid an estimated cost of over $150 million for the acquisition of the two telcos. The Ministry of Communications will not confirm or deny this amount, however if one carefully looks at the two lawsuits brought against the GOG, which in itself triggered the acquisitions, it looks plausible that the taxpayer indeed coughed more dollars than it could afford. The G-Com lawsuit was for a sum of $170million dollars and the WESTEL lawsuit was for $190 million dollars. Even if an agreed settlement of 50% was reached that is $180 million dollars

So here is Ghana, pacesetter in telecommunications liberalisation in Africa, leader in privatization and market led growth now saddled with pulling along two huge state parastatals on it's already over burdened back towards a dream of accelerated development and a reward of middle income status.

The implication of these new developments for the Information and Communication Technology (ICT) industry in Ghana is profound indeed. Not only does the Ghanaian state risk being seen as a foe to international business but also the likely affect on Ghana's B+ rating by Standard and Poor as an Investment hub lies in danger. More importantly the governments mantra of driving an ICT for accelerated development growth using the private sector and Foreign Direct Investment (FDI) stands at a crossroads.

So how did we end up in this complex mess of lawsuits, threats of lawsuits, threats of expropriation and eventually state acquisitions?

In August 1997 then Government of Ghana (GOG) agreed to sell 30% of Ghana Telecom to a consortium; G-Com led by Telecom Malaysia as part of the processes of liberalizing the Telecommunications sector in Ghana. Under the agreement Telecom Malaysia (TM) will have management control and was to meet some agreed terms. In the year 2000 Ghana experienced a change in government and the new government made it clear that it will not renew TM five-year contract when it ended in 2002. Also the new government decided to buy back the 30% share of G-Com in GT. In February 2002 the GOG fulfilled it promise and declined to renew the contract of TM and appointed Telecom Management Partner (TMP) of Norway to manage the affairs of GT. The result was a 32-month court battle between TM and the GOG, which commenced from September 2002 to May 2005. As a result GT operations where hindered. The company lost vital loans needed for its expansion. The World Bank's IFC denied GT a $100 million loan, another $150 million loan from Alcatel Shanghai Bell of China and $60 million syndicated loan was also lost. Today TMP claims the lack of the vital sources of credit is responsible for its inability to meet it obligations.

Also in 1997 WESTEL paid US$10.1 million for a license to become the second national operator. WESTEL become a joint venture with 66 percent owned by US Company Western Wireless International (WWI) and 34 per cent by Ghana National Petroleum Corporation (GNPC). Similarly WESTEL could not meet any of the obligations imposed on it by its license. In 2004 the NCA slapped a $70 million dollar penalty on WESTEL for failing to roll out 50,000 telephone lines by 2001, a presidential intervention reduced the penalty to $25 million dollars. WESTEL cried fouled and blamed the National Communications Authority (NCA) for ineffective regulation by allowing GT to get away with its obligation to interconnect in the first two years of WESTEL's life. The accusations went back and forth and eventually WESTEL filled a lawsuit against the NCA and the GOG for $190 million in damages. The GOG panicked and the result is the outright purchase of WWI by the GNPC through the Ministry of Energy.

So the January announcement by the ministry of its recent acquisitions perhaps marks the end of a long and bitter road. But if the ministry thought its press conference clears all minds then it certainly didn't, it raises more questions than answers.

Firstly the government as regulator through NCA has in effect become a player and a referee at the same time. What this holds for the consumers is clear-higher prices.

Secondly how does the GOG hope to sell any of the two telcos with this history of distrust and unfulfilled promises? And even its plans for sale leaves some doubt as to its seriousness; the government intends to sell of 51% of GT to a strategic investor in two years time. This announcement was made in May 2005 it is now January, seven months after and according to the minister the 'the government intended to appoint a transactions adviser to guide this process'. The key word here is intended which presupposes that 7 months after the intention to sell, the process to guide the sale has not yet commenced.

Thirdly, what makes the government so certain that GNPC or any other entity will run WESTEL profitable where WWI has failed? The key element of enabling environment especially effective regulation has to change first.

Fourthly going back to an even more fundamental question: why didn't the GOG allow both WWI and G-Com to sell their various shares on the open market? In the case of WESTEL, if WWI did not feel like doing business in Ghana anymore, the burden of sale was on them not the GOG. It could easily have availed itself for sale on the international market and any 'daring' investor will duly pay a market price for it. Why did the poor Ghanaian taxpayer had to cough the money for WWI inefficiencies?

Finally, these acquisitions raise the question of the Ghanaian state in a market economy. Is the Ghanaian state rolling back or rolling up? Apart from GT and WESTEL the government also recently acquired the ailing Aluminum Company, Valco and is set to buy back Juapong textiles.

What ever seems to be driving this sudden shopping spree one thing is certain it is a dangerous path, which is set to take us to a cul de sac of predictable consequences. Kofi Mangesi is a Research Fellow of Imani. He is the interested in promoting the link between Information and Communication Technologies and Development. Views expressed by the author(s) do not necessarily reflect those of GhanaHomePage.

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