July 28, 2005
I intended to write about the whole [of Africa but am now going to focus on Ghana].
Ghana [has] over 78 languages, 21,029,853 million people, [and] natural resources like, gold, timber, industrial diamonds, bauxite, manganese, fish, rubber, hydropower, petroleum, silver, salt, limestone [and] tourism but Ghana remains heavily dependent on international financial and technical assistance.
We have good lawyers, professors, engineers, accountants, doctors and [Ghana is] well endowed with rich natural resources as I made mentioned before, [and] was the first [country] in sub-Sahara Africa to gain independence in 1957, but 45% of the population live on less than $1 per day.
With all these natural resources, do we need Bob Geldofs [and a] global rock party to make poverty history? Some say, […] at least one-third of humanity [tuned in to Live 8]. We rocked to explosive music beamed from 7 locations around the world, interspersed with pictures of the misery and desolation of Africans and Africa. Kofi Annan dropped in.
In Edinburgh, a quarter of a million people marched, the biggest demonstration the “most beautiful small country in the world” (Scotland), had ever seen. It was all a rather odd sort of demonstration. The rulers identified with it and some even carried placards appealing to themselves. Thousands of activists filled the churches and [a] few found themselves in running battles with [a] high-handed, even brutal, police response. These were only [setting the stage] for the main event – the G8 meeting. [But why were there] no demonstrations from the western world when our leaders were using our natural resources to exchange for arms. Aid Countries like Ghana are still sniffing for the money they were jingoistic about when Ghana was named as [a] potential beneficiary. Mr. Applegarth, the man Bush appointed to run the MCA [Millennium Challenge Corporation] has recently resigned from frustration and some say inefficiency. The Enhanced HIPC debt relief initiative promised in 1999 a debt relief package for all eligible highly indebted poor countries to the tune of $100bn. Six years later, as the HIPC regime threatens to fold up, they have delivered $40bn less. Bush may make promises but he does not have the power to actually deliver. It is his Congress that [has that power but it] is filled with extreme neo-cons who hate foreign aid. What will the aid be for and under what conditions will it be delivered? The spin is that the aid will come without strings, except the requirement of good governance. The Ghanaian government and pundits echo this line.
Well, for starters it depends on what goes into the term “good governance”. What is mostly talked about is anti-corruption and democratic governance. Who doesn’t want that? But what does good governance actually mean? What type of government is good, for whom? The term governance as used by IFIs refers to more than political accountability and democracy. It is also used to define a specific economic orientation. Over the past 20 years they have sold the idea that a good government is one that creates an “enabling environment” for business but does not itself get involved in directly providing public services like health, education, and water, or get involved in the productive sector, i.e., invest in manufacturing or agriculture or employment generation. It was this good governance concept that drove the policies that dismantled the state’s capacity to deliver health and education and led to the introduction of cost-recovery, user fees and the proliferation of private for-profit health and education institutions catering [to] a small middle class. Good governance, in their view, also means deep and extensive liberalisation, including trade and the privatisation of public enterprises and [the] deregulation of foreign corporation[s]. Good governance for Americans is an investment climate that reduces or eliminates taxation for their corporations, removes all barriers to the transfer of capital abroad and dismantles any protection for labour (the right of corporations to hire, fire and pay wages without obstacles […] Good governance is a euphemism for a neo-liberal political and economic order.
Besides the good governance conditionality, the G8 agreement effectively stamped the authority of the IMF and the World Bank over the policy making environment of those expected to benefit from debt relief and aid. The debt relief package is explicit on this. It rewards those that have dutifully followed the IMF (often to the chagrin of their societies) and expects those hoping to gain debt relief to fulfil their IMF obligations fully. In addition, the Americans are very clear about the preconditions for accessing the Millennium Challenge. They include opening up markets to, and providing effective protection for, American companies. Ghana qualified for the MCA not simply because it met the democracy criterion but more so because the US commercial assessment, conducted by the US State Department, rates Ghana highly for upholding the rather ridiculous intellectual property rights regime that promotes profit for pharmaceutical and other firms over saving lives. It praises Ghana’s investment laws for successfully weakening labour unions and for maintaining no restrictions to the transfer of wealth abroad by foreign companies and for being unable to regulate companies. In its “Country Commercial Guide for US Companies” the Department of State had the following to say about Ghana: “Ghana has no restrictions on transfers out of the country of dividends or net profits, payments on foreign loans, fees and charges related to technology transfer agreements and remittance of proceeds from the sale or liquidation of an enterprise. Ghana is in compliance with the WTO’s TRIMS [Trade Related Investment Measures] and does not have performance requirements for establishing, maintaining and expanding a business. The parliament has passed TRIPS-compliant legislation [trade-related aspects of intellectual property rights], except for the copyright bill.
“Foreign investors are not required to have local partners except in the fishing, insurance and mining industries. By law, the GOG [the Government of Ghana] acquires ten percent of all interests in mining ventures at no cost. Investment in a trading enterprise must employ a minimum of ten Ghanaians.
“The regulatory bodies governing telecom, power and water are new and under-resourced which limits their ability to deliver the intended level of oversight.”
Ghana Airways liquidation
Ghana Airways began in 1958 as a state airline with the help of BOAC who were minority shareholders. The first flights were with an ex-BOAC Stratocruiser. In 1961 the airline became fully state-owned and re-equipped to own a fleet of IL-18s, Britannias, AN-12s, DC3s, and Viscounts. In 1965 the IL-18 London service was replaced with VC-10 aircraft while local routes were flown by HS748s and F-28 jets. A single DC9-50 was introduced in 1978. The DC10 replaced the VC10 on the London service in 1982.
The need for the government, the sole shareholder of Ghana Airways, to liquidate it arose as a result of the airline’s inability to meet its obligations to its creditors, resulting in its current state of bankruptcy.
Presently, the airline is indebted to the tune of more than $160 million. According [to] sources, the workers called on the government to pay their salaries, which had been in arrears since February this year.
Railway construction in the Gold Coast began in 1898 in the coastal village of Sekondi. Rail lines were constructed by the colonial government to link interior mines with the natural harbour at Sekondi. Railways revolutionized transport and facilitated the development of mechanized mining as machinery could now be moved from the harbour to interior mines, and bulk goods like timberland cocoa, which became the prop of Ghana’s economy, could be transported to the coast. Railway lines were constructed from Sekondi to mining areas such as Tarkwa, Prestea and Obuasi, and to large commercial and administrative towns such as Accra and Kumasi. The first train reached Kumasi in 1903.
Ministry for Ports, Harbours and Railways and the United Rail International are currently in negotiations with the government for the acquisition of Ghana Railways. The source told “The Ghana Palaver” that as [of] March 2005, when the ministry started negotiating with the United Rail International, the company had not paid the bid-bond as demanded by the ministry from other investors.
Ghana has produced and exported gold for centuries. In pre-colonial times, present-day Ghana was one source of the gold that reached Europe via trans-Saharan trade routes. In the fifteenth century, Portuguese sailors tried to locate and to control gold mining from the coast but soon turned to more easily obtained slaves for the Atlantic slave trade. Most gold mining before the mid-nineteenth century was alluvial – miners recovering the gold from streams. Modern gold mining that plumbs the rich ore deposits below the earth’s surface began about 1860, when European concessionaires imported heavy machinery and began working in the western areas of present-day Ghana. The richest deposit, the Obuasi mine, was discovered by a group of Europeans who sold their rights to E.A. Cade, the founder of Ashanti Goldfields Corporation (AGC). Since the beginning of the twentieth century, modern mining in the Gold Coast has been pursued as a large-scale venture, necessitating significant capital investment from European investors.
Gold bidding war
Randgold [Resources] chief executive, Mark Bristow, flew to Accra to tell the media why his company was so confident it [was] a better suitor for Ashanti. “We started as a South African company without a dollar, yet we were able to build the Morila mine in Mali,” Bristow said. “Randgold has 82,000 ounces of unhedged gold compared with Ashanti’s heavily hedged reserves. The two combine to make a less hedged book.” AngloGold chief executive, Bobby Godsell, also told local radio: “I am very happy to take my chances. I am quite confident that our offer is a powerful and a strong one. My only concern is that it is completely and well understood by everybody, indeed including the public in Ghana.” The AngloGold offer of 13 percent to 87 percent ownership in favour of the South African gold miner set a deadline of 30 September, 2003 for the Ghanaian government, holder of the golden share, to make up its mind. Ashanti, which has already signed a takeover agreement with AngloGold will be forced to pay a US$15 million break fee if it accepts a rival offer.
Ghana Post and Telecommunication
In 1975, the P & T began negotiating loans from [sic] many multilateral and bilateral financial institutions in order to undertake a number of development projects to modernize and expand both national and international telecommunication services in Ghana. The objective of these projects, known collectively as the First Telecommunication Project (FTP), was the rehabilitation, modernization and expansion of Ghana’s national telecommunication network. The project, which was planned to last from 1975 to 1979, involved financial commitments totalling $76 million, which came from the government of Ghana, the World Bank, Japan, the African Development Bank, and Canada. The specific accomplishments of the FTP include: the installation of twelve new electronic exchanges to replace old and obsolete automatic and manual telephone exchanges; [which], thus, increased Ghana’s telephone line capacity by about 50%; increasing the number of subscriber trunk dialling centres from 18 to 24; the construction of tertiary exchange, a telex, a message switch in the capital, and an earth station in the country; the installation of microwave radio links for telephone and television transmission from the capital to the northern part of Ghana and initiating a second new microwave radio link; and the construction of a third 500-kilometer microwave radio link linking Ghana to the two bordering nations of Togo and the Ivory Coast. This part of the FTP was intended to eliminate the transit of African telecommunication traffic through Europe and was popularly known as the PANAFTEL (Pan-African Telecommunication) Project. Although the FTP was delayed as a result of changes in government, economic recession, and other social factors, it was eventually completed in 1985.
Ghana Telecom was privatised in 1997. Telekom Malaysia poured millions of dollars into Ghana Telecom after it was privatised and tripled the number of Ghana’s telephone lines. But currency devaluation and a change of government in Ghana means that TM is now facing losses of $100m. The end result is that TM has sued the Ghanaian government, with the case now awaiting international arbitration.
TM paid $38m for a 30% stake in Ghana Telecom when it was privatised in 1997. As part of the deal, TM was awarded the management of the company and promised to install 40,000 landlines by 2002. At the beginning of 2000, TM then paid up half of a pledged $100m to purchase a further 15% stake in the African company. But that same year, TM’s management of Ghana Telecom became a thorny issue in the election. And, when president John Kufuor came to power, he showed a new hostility to TM. TM is now demanding back its latest investment, and insists there is still hope of reaching an amicable agreement.
TM also lost out because of a steep devaluation in the Ghanaian cedi in the late 1990s. The Malaysian firm was forced to buy expensive telecoms equipment in US dollars, but reaped its revenues in cedis.
In January 15, 2003 Telecom Management Partner (TMP), a wholly owned subsidiary of the Norwegian telecommunications group Telenor ASA, […] entered into a three-year management agreement with Ghana’s biggest telecommunications operator – Ghana Telecommunications Company Ltd. (GT).
Ghana was [too] poor to attract much in the way of commercial loans, even in the heady days of the late 1970s, but Ghana could use natural resources to exchange weapons. However, [the] level of poverty meant [Ghana was] doubly vulnerable to soaring interest rates and decreasing income from [its] exports. Unable to make ends meet, [Ghana] turned to the wealthy governments and international financial institutions who offered loans. As problems worsened, new loans had to be taken out to help repay old ones – and a vicious, inescapable circle began. There are also many cases of what are called ‘bad’ or ‘odious’ debts. These are debts which arose as a result of loans made to dictators and oppressive regimes, very often for political rather than economic or developmental reasons. Although the regime may now have been overthrown, the population is still expected to pay back the debt. These debts can also include loans made on the bad advice of so-called experts in creditor countries, loans which resulted in inappropriate and useless projects. We should also remember two things:
1. Not all governments of poor countries are corrupt. Not all rich-country governments are honest. In fact some of the best models of popular participation come from poor countries.
2. Economic degradation breeds corruption. It did so in Germany after World War One (whereas after World War Two, Germany received debt relief and both democracy and its economy flourished).
These are what have qualified Ghana for the MCA which it is yet to receive but the negative consequences of which are immediate to local producers.
But even assuming that the promises could be delivered with fewer strictures, is more aid always a good thing to pursue? The Millennium Project report and the AfC make a forceful case for the positive effect of aid. Aid works if it is directed to improving social and physical infrastructure and building the institutions of governance. Aid can improve poverty when it provides essential public services, expands government expenditure and increases economic growth. Although the aid-growth relationships are not so clear cut, expanding access to health, especially HIV/AIDs, malaria and TB treatment, education, [and] water, etc., has a direct positive impact on poverty. Aid provided in humanitarian forms can save lives and assist fragile communities to recover from stress and strengthen their livelihood structures.
But some aid can do more harm than good. A recent IMF report argues that aid can lead to lower growth if it distorts wages and exchange rates which in turn reduce competitiveness. Some argue that it is the size that matters. When aid exceeds 15% of GDP, it is more likely to do more harm than good because it exerts a negative pressure on absorptive capacity. But there is also a political explanation why aid dependency hurts. Higher levels of aid tend to be associated with higher [levels of] corruption and the erosion of the quality of the bureaucracy. It undermines accountability by prioritising accountability of bureaucracies and the political elite to aid arrangements rather than citizens groups. Aid tends to reinforce the power of the executive over the legislature, thereby weakening political checks and balances central to democratic governance. More than everything else, aid carries with it a set of ideas with privileged access to the executive, thereby effectively leading to a monopoly of the ideas conveyed by the aid system. The power inherent in this is referred to as discursive power, as opposed to directly coercive power conveyed through conditionality. Aid basically undermines autonomous thinking and the confidence to rely on domestic ideas and domestic sources of development finance. That is why we have governments who sound and act more neo-liberal than Hayek (the godfather of neo-liberalism), parroting the same things as the IMF and the World Bank and selling the interest[s] of their people down the tube without noticing. Aid destroys democracy even more when ruling parties see their chance of continued rule in receiving disbursements [of] aid crucial to buying patronage. Aid and independence move in different directions.
The deal is that the G8 recommends [at] the annual meetings of the IMF and World Bank to cancel debt owed to them by 18 countries (14 in Africa), where Ghana was included as well, as debt owed to the African Development Bank. This number could rise to 32 if the remaining countries are able to fulfil typical IMF conditions under the HIPC framework. This effectively means an extension of the HIPC arrangement but this time to include the cancellation of the principal not just interest servicing falling due. But this cancellation is not meant to be immediate.
The $40bn figure is in nominal terms and will be delivered over 40 years. In Net Present Value terms, this is equivalent to only $17 bn. Ghanaians seem to have developed the impression that [this] is a one-off cancellation of all its outstanding debts [and] that Ghana has suddenly woken up to a debt-free life. That’s not what it is. Indeed the opposite is the case. Ghana is effectively married to the IMF for another 40 years before the old debt stock finally goes. Then again, a new one would have been built up.
The Ghanaian mentality is that “foreign investors” [sic] are wealth acquiring property in Ghana. I am sorry to say soon the country will be foreign own[ed]. Our major [sic] gold, main airline, Telecommunication, Railways, etc., are own[ed] by foreign investors or partly own[ed] by foreign investors. Ghana [became] independent [on] March 6, 1957, as I said before, but we still depend on foreign investors to run our motherland, Ghana. With all our national resources, Ghana [doesn’t] need to borrow. We hope they send their so called “Make Poverty History 2005” [aid] for food but not for arms.
Samuel Sawyer is a banker in Norway.