TELEKOM MALAYSIA has usually been successful over the past decade as it moved to realize a dream of Prime Minister Mahathir Mohamad for domestic companies to invest in Third World countries. Successful, that is, with the notable exception of a small African nation on the central-west coast of the continent, Ghana. A formal relationship between Malaysia's dominant phone company and Ghana starting in 1997 is now mired in acrimony. And Telekom Malaysia is in danger of losing nearly $100 million on the deal.
Telekom Malaysia's involvement with Ghana Telecom looked promising at first. For the Malaysian company, it was not only an opportunity to realize Mahathir's ambitions, but also to enter a promising partnership: a management contract in a company determined to expand and an ownership stake in a modernizing phone company. And for Ghana it was a chance to get a professional manager with experience in building a national phone system.
Today, however, the partnership stands as a cautionary tale to companies with Third World ambitions. One major problem is that the investment relied in part on personal connections between Malaysia and Ghana's one-time dictator and, later, elected president, Jerry Rawlings, who ruled Ghana for 20 years and developed great admiration for what Mahathir had achieved. But he was constitutionally barred from running for re-election in 2000, and his party was voted out in favour of one hostile to the telecoms joint venture.
IT SEEMED LIKE A GOOD IDEA AT THE TIME
Telekom Malaysia's tale begins in the mid-1990s when Rawlings decided to privatize Ghana Telecom. Telekom Malaysia outbid companies like AT&T and, along with a minority Ghanaian joint-venture partner, paid Ghana $38 million for a 30% interest, which valued Ghana Telecom at $127 million.Telekom Malaysia insisted on management control. Such management contracts are common in developing countries as sweeteners to attract foreign investors, and they were typical of Telekom Malaysia's other foreign ventures. "Telekom Malaysia would not have gone in" without such a deal, says a Malaysian telecoms executive. In return for a five-year contract, the Malaysian utility promised to install 400,000 lines in Ghana by 2002--there were about 80,000 lines in 1997.
But a management contract was no panacea. Beginning in the late 1990s, Ghana's currency suffered a steep devaluation, which hammered the phone company. Expensive new telecommunications equipment was invariably priced in U.S. dollars, but income came in the greatly devalued Ghanaian cedi.
By early 2000, Ghana Telecom needed a cash injection. Telekom Malaysia agreed to pay $100 million for an additional 15% in the company, which valued the whole company at $667 million. In August that year, Telekom Malaysia paid half of the amount, $50 million, as a good-faith deposit. At about the same time, a World Bank- affiliated lender promised $100 million--but only if Telekom Malaysia retained management authority.
The situation changed dramatically after the 2000 election, however. The opposition had criticized Telekom Malaysia's control of Ghana Telecom during the election campaign, and it promised to "rectify" the situation if elected.
That partly explains the antipathy of new President John Kufuor and his party to Telekom Malaysia when in fact they did defeat Rawlings' people. One incoming official noted that Telekom Malaysia was given control though it lacked majority ownership and never brought "even a cent of working capital to Ghana Telecom." The government cancelled Telekom Malaysia's additional $100 million purchase, but hasn't returned the $50 million deposit. And it cancelled the loan that required Telekom Malaysia to stay on.
Telekom Malaysia's management performance has been a matter of dispute. The company tripled Ghana's telephone lines to 240,000, short of the 400,000 it had promised; Ghanaian critics say the new system is lousy. The dispute escalated earlier this year as the Ghanaian government moved to dilute Telekom Malaysia's power on the board of directors. Telekom Malaysia answered with a lawsuit, and Ghana responded by firing Telekom Malaysia staffers and looking for a new partner.
Telekom Malaysia has since lost its suit and is appealing. It now hopes to resell its stake to the Ghanaians and recover its $50 million deposit. Both Telekom Malaysia and Ghana's high commission in Malaysia declined to discuss the matter with the REVIEW. Telekom Malaysia has said it will appeal to an international arbitrator if the problem isn't resolved by December 18.
Power Point Presentation at the World Telecom day:
