GHANA - CAUGHT ON THE HORNS OF THE CONTRACTING DILEMMA

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The Ghanaian Government’s rather wobbly telecoms strategy is beginning to fall into place. It has at last signed a contract with Norwegian telco Telenor whose management will be on the ground by the end of the month. It is still calling Telenor "a strategic investor" but this is wishful thinking on its part. Meanwhile Telekom Malaysia is suing the Government and Ghana Telecom faces losses of US$100 million. Russell Southwood looks at the bumpy ride ahead.

The telecoms downturn in the developed world has not been kind to those in Africa who missed their chance to sell while the market was high. With all the big international telcos seeking to shore up their balance sheets, taking on troublesome, loss-making African state telcos is something they are all seeking to avoid. The South African search for a second national operator illustrates the current rather dire state of the telecoms world in a much larger market. So it was hardly surprising that the Ghanaian government was unable to raise any investment interest for a minority position in its troubled telco after it summarily dismissed its previous strategic partners, Malaysia Telekom.

Faced with this lack of interest from telecom investors, it has sought to put a brave face on it by bringing in Telenor as its management contractor. Because it would not sell a majority share in Ghana Telecom, this was probably the most sensible course of action open to it. The management contract is for three years and will be reviewed annually.

However it comes with two substantial risks. If the management contractor cannot make the current employees of Ghana Telecom hit the targets agreed in the business plan that forms part of the contract, there’s not a lot the Government can do. It has undoubtedly geared the contract to performance but it is only a management contract and the cost to Telenor of "walking away" will be far less onerous than say the cost of the current minority shareholding to Malaysia Telekom.

The business plan is full of politically saleable objectives that have received much exposure in the local press and these are examined below. All of these commitments will cost money and as the owner of Ghana Telecom, the Government will have to bear the direct burden of this investment. It is unclear what money the government will put in to make a reality of the business plan objectives or how it will cover the current losses. Without clearly stated answers to these questions, it could easily all end in tears.

So what does the business plan task Telenor to achieve on the Government’s behalf? Minister of Communications and Technology Felix Owusu-Adjapong claims: "Unlike other businesses where many workers are laid off with the coming of a new management, particularly when a foreign management takes over a company, it is estimated that the staff strength of Ghana Telecom will increase from the present 3,900 to 6,000 by the end of the period."

Evidence elsewhere - both from the developed and developing world - suggests that it is impossible to create a successful business model for state telcos that does not involve driving up productivity: as night follows day, this involves cutting employees to drive out the inefficiencies tolerated under state control. Usually the number of people employed in the sector increases with competition but these staffing increases are not made by the incumbent. So an increase of 1100 employees over three years is quite hard to take seriously.

As always with public service contractors, Telenor are being asked to dance to two different tunes: financial (the needs of Government to make a return) and social (the need to develop the country’s infrastructure and the betterment of its citizens). The Minister says the plan involves the installation of telephone lines in all parts of the country within the next couple of years, and improvement in the infrastructural and financial base of Ghana Telecom. Without knowing what the government will invest, these two objectives move in opposite directions.

The Government has prioritised the opening up of telephone access to the education sector: all existing telephone infrastructure in the country’s universities will be upgraded and secondary schools and teacher training colleges will be connected.

But the past is still with us. Telekom Malaysia has sued the government and the case is now awaiting international arbitration. It says that it paid US$38 million and is presumably intent on recovering as much of this sum as it can and reaching a final position where it never has to go back to Accra again. Who is going to pay to get out of this mess? Well it’s probably going to be the Government again. The international courts are unlikely to find completely in favour of the Ghanaian government and in due course it will have to settle with Telekom Malaysia.

Meanwhile the Minister still chairs what is supposed to be the independent regulator despite letting it be known informally that he was merely keeping the seat warm for an industry professional. And he still remains effectively in control of the investment plans of Ghana Telecom. Whatever happened to less state control and more competition?