IMANI Alert: Revival of Kumasi Shoe Factory Palaver

31st July 2011
We at IMANI are delighted by the recent announcement that a $50 million credit line has been secured to revamp operations at the long-moribund Kumasi Shoe Factory.

This project should contribute considerably to the local economy in many ways than one, from boosting purchasing power to enhancing the skills base of the community and improving the work ethic of youth employees of the facility. Consumers should also benefit from high-quality, affordable, footwear.

But as is always the case with major projects, there are a couple of concerns.

Firstly, it is a puzzling that it is the Ghana Armed Forces that is driving this deal. Many people believe that business and the military does not mix, and they cite the examples of Thailand and Egypt where tolerance for this has led to significant political complications. In fact, some countries prohibit the practice altogether because of its potentially corosive effect on democracy.

This country really has no history of successful enterprise management by the military. We acknowledge the point made by the Minister of Defence that qualified civilian administrators, as well as retired service personnel, would be engaged to contribute, but the point is: who will call the shots? Who will have oversight responsibility? Obviously, it shall be the project sponsor, the Ghana Armed Forces.

We all know where most state – owned and state-controlled enterprises have ended up, sometimes just a few months after the pomp and pageantry of their launch.

While the ownership structures of this new company are not clear and no other information was provided as to the source of the $50 million, including whether the vehicle that has been formed to execute the business plan, Defence Industrial Holding Company (DIHOC), is part-owned by the state, what can be assumed is that parliamentary ratification must have been sought for any component of the credit facility with the potential to burden the public purse.

It is therefore surprising that so little information is in the public domain with respect to this project.

What information is in the public domain though raises more questions than answers.

Firstly, the named Czech partner, Knights S.R.O (http://www.knights.cz/index.php?energetika&iv=1&lang=en), does not appear to have significant experience in manufacturing or industrial engineering. Are they the technical partners?

Given that checks with the Commercial Registry of the Czech Justice Ministry indicate a share capital deposit of approximately $800,000, it is doubtful whether Knights, or its three ethnic Chinese owners, can be effective financial partners to the Ghana Armed Forces in this project.

We are concerned therefore that the private sector partner in this ostensible Public - Private Partnership (PPP) may not have what it takes to add considerable value.

It may of course well be that things have changed with the company in recent months, faster than the commercial registry could have kept pace, or there may be other companies backing them. But it would be good for the public to be presented with evidence of this.

The concern here is that between 2002 and 2003 another Czech company was reported to have purchased the Kumasi Shoe Factory with a view to revamping its operations. The company, TELFIN, was later accused of renting out the real estate of the factory to Ghanaian businesses and doing little to revive the core business of the company.

There is no doubt that 8 years on that investment has failed to bear fruit. It stands to reason that we should ask some hard questions about this latest reincarnation. It is Ghana's image in international financial circles that suffers when poor due diligence impairs the prospects of promising projects before they even take off.

Transparency is always good because it imposes strict obligations on project managers to do a thorough job. Hopefully powers that be shall heed the call for greater openness.

We wish all those connected with the project good luck.

IMANI – Ghana (syndicated via: www.Africanliberty.org)