 1- ECONOMIC POTENTIAL
 ECONOMIC RECOVERY:
Ghana has an abundance of both natural and human resources. The natural resources include mineral wealth, a good supply of arable land suitable for crop and livestock production, forest resources, marine and freshwater fish stocks, and a good potential for hydroelectricity generation. The economy of the country is based on two distinct sectors.
# a large, traditional sector (principally agricultural and informal activities):
# a relatively small, labour-intensive industrial and service sector.
The economy has traditionally depended on exports of primary products, with about 60% of the labour force employed in agriculture. Agriculture contributes about 46% to the GDP and is characterised by small-scale operations, principally staple food crops and cocoa production. The services sector is the second largest employer (about 25% of the labour force), accounting for over 40% of real GDP from trade and public sector services, while the industrial sector accounts for about 14% of GDP and employment.
Ghana began an Economic Recovery Programme (ERP) in 1983, and has undertaken a series of comprehensive macroeconomics and structural adjustment reforms aimed at reversing the economic decline that had characterised the state of the economy for almost a decade. The reform programme included restructuring of institutions, diversifying the economy, balancing the national budget, liberalising trade and currency and attracting direct private investment. The ERP also sought to improve the economy's capacity to adjust to both external and internal shocks and to generate sustainable growth and development.
It is widely acknowledged by economic analysts that the reforms have largely succeeded. The precipitous decline in real GDP has been arrested and reversed, with the result that annual GDP growth rate has averaged 5% since 1984. Government revenues have increased to an extent that the overall fiscal balance has shown a surplus. In addition, the growth in money supply has been controlled, bringing about relative price stability in the economy.
FINANCIAL RESTRUCTURING:
The banking sector has been restructured to respond more positively to the needs of the productive sector. Incentive packages have also been introduced to enable these sectors of the economy to increase production, while public investment strategies have helped to rehabilitate the physical infrastructure on a large scale. The industrial production growth rate is positive and the mining sector is booming, an indication that confidence has been restored in commerce and other tertiary activities. In spite of these significant improvements, the earlier period of economic stagnation has left its mark.
GOVERNMENT INITIATIVES:
Over the past few years, the Government initiated specific policies to lay a firmer foundation for private sector development. Policies initiated to achieve this include the following:
# the programme of divestiture of state-owned enterprises;
# application of stronger discipline to the remaining state-owned enterprises, through establishment of corporate plans and performance agreements with the Government;
# introduction of monetary and banking sector reforms; the Financial Sector Adjustment Programme (1990) aimed at improving the private sector's access to capital by transferring non-performing assets of some state-owned banks to the Non-Performing Assets Recovery Trust to enable banks to re-capitalise;
# rehabilitation of roads, ports and the telecommunications system.
The policies implemented under the ERP and other reform programmes have brought about significant improvements in the country's economic position in general and in private sector growth in particular.
2- DIVESTITURE PROGRAMME
WHY DIVESTITURE?
Many State-Owned Enterprises (SOEs) have performed inadequately over the years.
Factors, which have contributed to this, include:
# over staffing
# decision making at times being paralysed by excessive bureaucracy and a laissez-faire attitude towards state business
# the lack of technical expertise
# the absence of the commitment and entrepreneurial direction that private investors bring to business
# low incentives for management and inadequate working capital and investment in new plant and machinery, leading to low capacity utilisation.
Accordingly, the Government of Ghana is pursuing a programme of divestiture of SOEs.
The divestiture programme is an ambitious attempt to unlock the economic potential of Ghana by permitting resources of people, money and technology to be put to their best use and by increasing efficiency to achieve better living standards for all. More specifically, the programme is intended to reduce the size of the public sector and improve the performance of SOEs by mobilising private sector management and capital. This will reduce the financial and managerial burden on Government. The state will be able more efficiently to manage the business of Government, using the proceeds from sale of SOEs to improve infrastructure, health services and education.
WHEN WAS THE DIVESTITURE PROGRAMME LAUNCHED?
An SOE reform programme was launched in 1988, as part of Ghana's overall Economic Recovery Programme. The SOE reform programme aims at improving the performance of enterprises where they remain state-owned, and rationalizing the state sector by means of the divestiture programme.
THE DIVESTITURE IMPLEMENTATION COMMITTEE:
The Government of Ghana established the Divestiture Implementation Committee (DIC) to implement and execute all Government policies in respect of divestiture programmes. Details about DIC are set out in the Divestiture of State Interests (Implementation) Law, 1993 (PNDC Law 326).
DIC's functions under that law are:
# to plan, monitor, coordinate and evaluate all divestitures;
# to arrange for the effective communication of Government policies and objectives for any divestiture;
# to develop criteria for the selection of enterprises to be divested and assume responsibility for preparing such enterprises for divestiture;
# to make appropriate consultations for successful processing of all divestiture programmes, and
# to ensure consistency in procedures for divestiture, in particular with regard to valuation, invitation for bids, negotiation of sales and settlement of account.
The members of DIC comprise ministers of state and trades union, institutional and private sector representatives. The day-to-day management of the divestiture programme is undertaken by a Secretariat, led by an Executive Secretary. The members of DIC meet regularly to consider, among other things, specific transactions negotiated by the Secretariat, submitting, as applicable, recommendations to the President's Office for approval. Specialised sub-committees on mining, cocoa and coffee plantations assist DIC.
3- SOEs TO BE DIVESTED
At the outset of the divestiture programme, over 300 state-owned enterprises (SOEs) were operating in all sectors of the economy. Whilst a large number of them were in manufacturing and agriculture (including cocoa and coffee plantations, poultry and fishing), others were in the mining, hotel and timber sectors. Government informs the DIC of particular SOEs that have been listed for divestiture.
MODE OF DIVESTITURE:
Information and documentation are collected on each SOE listed for divestiture. Once that has been done, decisions are made as to whether it will be divested as a whole or fragmented for the purposes of divestiture and the preferred mode of divestiture. Fragmentation may be appropriate, for example, where the SOE comprises a number of distinct businesses or divisions. The mode of divestiture will usually be the sale to private sector investors of the SOE's assets by competitive tender. However, other options include the sale of shares (particularly where the SOE already has some private sector shareholders), the entry by the state into a joint venture with private sector investors (usually by transferring all or some of the SOE's business and assets to a newly formed vehicle, and the state and investors taking equity stakes in that vehicle) and the leasing to private sector investors of an SOE's assets. Where an SOE is moribund, and no interest has been shown by investors, liquidation is put in train.
It is Government's policy, except in exceptional circumstance to terminate the contracts of employment between an SOE and its employees with effect from completion of the divestiture. The Government will indemnify investors against all costs associated with termination (including, for example, severance payments and end-of-service benefits) or otherwise arising out of the employment of the employees during the period ending on the termination. Termination permits investors to start with a clean slate and, most importantly, to select their own levels of staffing.
In addition, except where the mode of divestiture is the sale of shares, Government usually assumes responsibility for the discharge of the SOE's liabilities.
RESULTS ACHIEVED:
The divestiture programme got under way, in terms of results, in 1990/91. As at 31 December 1999, the divestiture of 233 SOEs (or parts of SOEs) had been authorised by the president's Office. The breakdown, on an annual basis (highlighting the mode of divestiture, is as follows:
SUMMARY OF DIVESTITURE TRANSACTIONS
Mode to
| 1991 | 92 | 93 | 94 | 95 | 96 | 97 | 98 | 99 | Total | Sale of
assets | 16 | 4 | 3 | 30 | 16 | 18 | 15 | 7 | 15 | 127 | Sale of
shares | 11 | 5 | 2 | 2 | 6 | 1 | 2 | 2 | 4 | 35 | | Joint venture | 6 | 3 | 1 | 4 | 0 | 4 | 1 | 2 | 0 | 21 | | Lease | 3 | 1 | 0 | 1 | 0 | 0 | 1 | 0 | 1 | 7 | | Liquidation | 24 | 2 | 5 | 5 | 6 | 0 | 0 | 0 | 1 | 43 | | Total | 60 | 15 | 11 | 42 | 31 | 23 | 19 | 11 | 21 | 233 |
Many of the enterprises sold have been modernised and brought back into production.
Examples are:
# Golden Tulip (Formerly Continental Hotel)
Prior to its divestment in 1990, the hotel had 116 employees and about 130 rooms. The number of employees has now risen to 346 and the number of rooms has gone up to 234. These include 4 junior suites, 2 luxurious Executive suites as well as 6 Executive Apartments. For long staying guests or those seeking more privacy, there are 16 chalets set in beautiful gardens, which offer a living room and a kitchenette. The hotel can accommodate meetings and conferences for groups up to 300 persons. Golden Tulip was voted &# 8220;Hotel of the Year&# 8221; and &# 8220;Host of the Year&# 8221; in 1996. It was also awarded &# 8220;Host of the Year 1997&# 8221; and won the Good Corporate Citizen's Award 1998.
# West African Mills Company
The West African Mills Company Limited, Takoradi, divested in 1992 is another example of the success of divestiture. The company is made up of two factories &# 8211; WAMCO I and WAMCO II, with installed capacity of 230 tonnes of cocoa beans per day. Since taking over the enterprise, the new German owners have invested over DM30 million, salvaging it from imminent collapse. In 1999, with the rehabilitation and modernisation exercise, processing of cocoa beans has gone up from about 10,000 to 25,414 metric tonnes, utilising about 52% of its installed capacity. WAMCO II on the other hand processed 20,394 metric tonnes of cocoa beans, utilising about 61% of its capacity. Currently, an additional plant is being installed. This will process 20,000 metric tonnes of cocoa beans per annum, and processing of cocoa beans from 10,000 to 53,351 metric tonnes a year. In 1999, both factories exported their various products to foreign markets to the tune of about DM74 million. The number of employees has also increased from 170 to 345.
# Tema Steel Company (Formerly GIHOC Steel)
Tema Steel Company has also completed its rehabilitation programme, which began soon after its being handed over in 1991. More than US$572,000 have been invested in the rehabilitation exercise. Prior to divestiture, operations have ceased altogether. It now produces various sizes of high tensile and mild steel rods and billets. In the melting shop, production level has gone up from the pre-divestiture figure of 6,300 tonnes per annum to 30,000 tonnes per annum in 1997. Also, the conversion efficiency of rolled products from billets from the melting shop has been increased to 88%. The company has achieved a production level of 22,288 tonnes per annum compared with its pre-divestiture production level of 4,500 tonnes per annum. The employment level has gone up from 130 before divestiture to the current 430. Its utilization capacity has increased form 2% in 1990 to 90% in 1999. As at last year, Tema Steel has exported more than 5,585 tonnes of iron rods amounting to about US$1.34 million.
The trend of losses recorded prior to divestiture has been reversed. The company is now profitable and has paid dividend of about C555.4 million to the Government for 40% shares for 1997 and 1998. Tema Steel is a member of Ghana Club 100 (Ghana's top 100 companies).
# Ghana Agro-Food Company (Formerly TFCC)
A notable achievement is the creation of a joint venture, known as Ghana Afro-Food Company Ltd. (GAFCO), out of the former Tama Food Complex Corporation. The Government of Ghana has a 25% shareholding in GAFCO, with the balance held by Industrie Bau Nord AG, a Swiss company with over thirty years of operating experience in Africa. GAFCO has undertaken a complete rehabilitation of all four industrial plants previously owned by the corporation. They are all operational and are doing well. The number of employees has increased from the pre-divestiture level of 494 to 930 and the employees are receiving more than three times the salary they were earning prior to the divestiture of the company. The Farmers' Organisation Scheme introduced by the company has provided indirect employment to a large number of people.
Capacity utilization has gone up since divestiture from 45% to 85%. GAFCO has won several awards including the &# 8220;Industrial Company of the Year&# 8221;, and the &# 8220;Gold Award for Tuna Export Performance&# 8221; in 1996 by the Chartered Institute of Marketing, (CIM) Gh. and Ghana Export Promotion Council respectively. In 1998, &# 8220;Sankofa&# 8221; Feeds were awarded the &# 8220;Product of the Year&# 8221; by the CIM Gh. GAFCO is a member of Ghana Club 100.
|
# Coca Cola Bottling Company of Ghana (Formerly GIHOC Bottling)
The conversion of the GNTC bottling into a joint venture with Coca Cola International and a private American citizen holding a total of 71% and the Government of Ghana (29%) has led to the construction of a new US$20m plant that was commissioned by the President in 1997. To date, the company has invested US$47 million in manpower, vehicles, glass bottles, plastic crates, production and marketing equipment. In January this year, a second bottling line was commissioned at the cost of US$10 million in Accra. This increased capacity from 1,000 to 3,000 crates per hour. In addition, the company has a plant in Kumasi, which started operation in March. 1995 with a capacity of 1,000 creates per hour. Since the inception of the new company, market share and sales volume of Coca-Cola products have increased steadily. Production has gone up from about 2.8m cases in 1995 to more than 8.4m cases in 1999. It is estimated to go up to 10.4m cases by the end of this year. Employment level has also gone up from 372 in 1995 to 636 in 1999. It is envisaged that employment will be about 684 by the end of the year 2000. More than C36b have been paid to Government as taxes and duties.
# Ghana Oil Palm Development Company Ltd., GOPDC (formerly Ghana Oil Palm Development Corporation)
GOPDC was privatized in 1995 with the Ghana Government retaining 20% shareholding and the SAIT Consortium of Belgium 60% and the smallholders/out growers 20%. Before being privatized the palm oil mill capacity was 30 Mt per hour. To date the mill capacity has been increased to 48 Mt per hour and further improvements for efficiency are being introduced. A 45mt/hr. palm kernel processing plant and a palm oil storage facility with a capacity of 6,200 mt to facilitate export of palm oil and palm kernel oil have been installed and commissioned at Tema. At the time of divestment, the out grower programme had reached 7,666 hectares. From 1995 0 1999 an additional 4,834 hectares of out grower plantings have been made. More than US$9.6 million have been invested since divestment. GOPDC offers employment to an average of 1,500 persons a year. It also offers employment to 6,000 farm families as a result of the out grower scheme.
# Mining Sector
Considerable progress has been made in the mining sector. In addition to Ashanti Goldfields, we have obtained private participation into the Tarkwa, Dunkwa and Prestea mines. Both exploration and production have increased dramatically at the Tarkwa Mines. For example, since handower in July 1993, production has increased from 26,000 to 40,000 ounces per annum. So far US$145m have been invested and US$4.9m have also been paid as royalties and taxes to government. Projected investment of nearly US$250m is expected to take production up to 200,000 ounces per annum by the end of this year.
see table
4- OUTSOURCING
PRIVATIZING: THE PROCESS
The Government of Ghana, through the Divestiture Implementation Committee (DIC), is outsourcing some divestitures to the private sector. DIC closely monitors subcontracted work to ensure that it is carried out in accordance with DIC's procedures and statutory responsibilities.
REGISTER OF PRE-QUALIFIED FIRMS
DIC maintains a register of pre-qualified firms to undertake work on divestiture. The register is divided into the following categories:
# Management, financial and business consultants;
# Legal firms and consultants;
# Merchant banks and non-bank financial institutions;
# Surveyors, estate managers and landed property consultants; and
# Chartered accounting firms
Interested persons may inspect the register at DIC's headquarters during usual business hours.
DIVESTITURE ASSIGNMENTS
Principally, the assignments will be:
# to provide advice in a lead capacity in connection with, and ultimately to implement, the divestiture of a state-owned enterprise SOE;
# valuation of the land and buildings, plant and machinery and other fixed assets of an SOE;
# financial valuation of an SOE;
# preparation of a profile of an SOE in the form of an information memorandum.
THE WORLD BANK
The Government of Ghana has received a credit from the International Development Association to cover the cost of consultancy services, and applies proceeds of the credit to eligible payments under outsourcing contracts. DIC selects consultants in accordance with the World Bank's guidelines for the selection of consultants.
PROCEDURE FOR SELECTION
The procedure for selecting consultants depends on the nature and size of the assignment concerned. However, in the case of an assignment to provide advice in connection with, and ultimately to implement, a divestiture, the procedure is as follows:
DIC draws up a short list of suitable firms appearing on the register. Short-listed firms are provided with tender documentation. This generally comprises a letter of invitation, terms of reference, supplementary information for consultants and a sample form of outsourcing contract.
Proposals received from short-listed firms must comprise separate technical and financial proposals and contain the information set out in the supplementary information for consultants. Completed proposals will be sealed in two separate envelopes: one envelope will contain the technical proposal, the other, the financial proposal. Proposals must be delivered, by hand or post, on or before the closing date stated in the letter of invitation. Late proposals are not accepted.
A two-stage procedure is adopted for evaluating proposals received, with evaluation of technical proposals being completed prior to any financial proposals being opened and compared. Technical proposals are evaluated using the criteria and weightings set out in the letter of invitation. Proposals from only those firms scoring more than seventy points (out of a total of 100 points) for their technical proposals are considered for further evaluation. Financial proposals are also given a score out of 100, once again on the basis and assumptions set out in the letter of invitation. Finally, each proposals is given a combined score: for this purpose the weights given to the technical and financial proposals are eighty and twenty points respectively.
The winning form is invited by DIC for negotiations. Negotiations usually start with a discussion of the firm's proposal, the proposed work plan, staffing and any suggestions made to improve the terms of reference. Agreement is then reached on the final terms of reference and the staffing.
Once full agreement has been reached, the outsourcing contract is signed.
INVITATION TO REGISTER
Ghanaian and international firms not currently on the register are invited to register their interest and qualifications to undertake divestiture work.
Interested firms should submit to DIC the following information (as relevant):
# the firm's full name, address and contact details;
# the date of the firm's establishment;
# a list of the firm's directors and shareholders or partners;
# the names and addresses of the firm's bankers and auditors;
# the firm's fee income for the last three consecutive financial periods;
# a statement of the firm's capabilities;
# a statement of the firm's relevant experience during the last three years, including specific experience in the following areas:
-divestiture assignments
-preparation of information memorandum
-acquisition, flotation, privatisation, finance
-advisory service/technical assistance to government ministries, SOEs etc.
# the firm's current number of permanent professional staff, together with curricula vitae of those persons likely to be engaged on any divestiture work undertaken for DIC; and
# the firm's working relationships, actual or planned, with local or international firms;
together with a non refundable fee of, in the case of Ghanaian firms, 100,000 cedis and in any other case, US$200.
Collaborations between Ghanaian and international firms are encouraged.
Applications received will be evaluated by DIC and given a score out of 100, based on pre-set criteria and weightings. Only those firms, which score a minimum of 60 points, will be entered on DIC's register of pre-qualified firms. Firms will be advised of the outcome of their applications as soon as practicable after evaluation.
Entry on the Register will be for an initial period of two years from the date of written notification of acceptance. Firms may extend their registration at no fee by providing a full update of capability at two-year intervals. If a registered firm has not achieved a shortlisting for any assignment during the two-year period, and also fails to provide an update, the name of the firm will automatically be removed from the register.
DIVESTITURE PROCEDURE
INVITATION
The Government of Ghana is fully committed to the divestiture programme and accordingly, invites all investors, both local and international, to participate in the programme.
The procedure followed in any particular case will depend on a number of factors, including the mode of divestiture selected. However, where the mode of divestiture is the sale of the assets of a state-owned enterprise (SOE) by competitive tender (which is the most common mode), the procedure will usually be as set out below.
The procedure may appear long and cumbersome. However, it is designed to ensure transparency and integrity in connection with the divestiture of SOEs.
ADVERTISEMENTS
As soon as bid documents have been prepared, the SOE concerned is advertised for sale. At a minimum, advertisements are placed in two leading Ghanaian newspapers each week for three consecutive weeks. Advertisements may also appear in other publications.
The advertisements provide a brief description of the SOE (or part of the SOE) being divested, and indicate the closing date for delivery of bids; this is generally not less than two calendar months after the date of the first advertisement in the Ghanaian newspapers.
OBTAINING BIDDING DOCUMENTS
Investors interested in an advertised SOE should make contact with the person indicated in the advertisement. Subject to their paying the appropriate fee and (if required) signing a confidentiality undertaking, investors are provided with the relevant bid documents. These generally comprise a detailed set of bid procedures, a draft sale and purchase agreement, an information memorandum containing a profile of the OSE and an independent valuation report of the SOE's land and buildings, plant and machinery and other fixed assets.
FORM OF BIDS
Bids from investors must comprise separate qualification statements and price bids. The required contents of each of these are clearly specified in the bid procedures.
Qualification statements usually include, among other things, details about the investor and the investor's business plan for the SOE. The business plan may cover, for example, the investor's plans for the development of the SOE (with regard to both its rehabilitation and expansion) and the investor's intentions with regard to employment.
Price bid include, among other things, the price offered for the SOE's assets, the timing of any deferred payments, details of the security proposed to be given (in the case of deferred payments) and a detailed explanation of how the investor intends to finance the acquisition.
INFORMATION ON PRICE
DIC prefers the price offered to be paid in full on completion of the sale and purchase. Bids involving the payment on completion of less than 50% of the price offered or deferred payments due after the third anniversary of completion are not, except in exceptional circumstances, considered.
Deferred consideration should be secured by a guarantee from a bank or other person of sufficient financial standing. DIC may consider, where appropriate, taking security over the assets until full payment is received.
Interest is payable on deferred payments.
DUE DILIGENCE
Investors who wish, prior to submitting their bids, to inspect the SOE's assets, operations and records are usually permitted to carry out a site visit.
DELIVERY OF BIDS
Completed bids must be sealed in two separate envelopes: one envelope will contain the qualification statement, the other the price bid. Bids must be delivered, by hand or post, on or post, on or before the closing date stated in the relevant advertisement and bid procedures. Late bids are not accepted.
EVALUATION OF BIDS
A two-stage procedure is usually adopted for evaluation of bids received with evaluation of qualification statements being completed prior to any price bids being opened and compared. Price bids from investors who submit unsatisfactory qualification statements are not opened.
In the event of equal price bids, preference is given to bids submitted by Ghanaians.
Evaluation of bids is completed, wherever practicable, within one calendar month after the closing date for their submission.
NEGOTIATIONS
The investor who submits the highest confirming price bid opened is invited for negotiation of the draft sale and purchase agreement and discussion of the business plan comprising part of his qualification statement. Negotiations may include the offer price (and, if relevant, the timing of deferred payments).
In the event of negotiations with an investor failing, the investor who submitted the next highest conforming price bid opened may be approached, and so on.
An investor may be asked to submit a bond to DIC before negotiations start. The bond is for an amount equal to 10% of the offer price.
APPROVALS AND SIGNATURE
Formal approvals to any divestiture must be sought from, first, the members of DIC and, secondly, the President's Office. The length of the approval process depends on when agreement is reached with the investor, but usually takes about two calendar months.
Upon receipt of the approvals, the sale and purchase agreement is signed, and the assets concerned handed over.
INVESTMENT INCENTIVES
The Government of Ghana has, over the past decade, instituted a number of reforms under the Economic Recovery Programme (ERP) to create an enabling environment for investment activity. The Government recognises private investment to be the leading stimulus for economic growth.
Private investors in the Government's divestiture programme are benefiting from the macro-economic and sectoral reforms introduced under the ERP &# 8211; most notably the rehabilitation of economic and social infrastructure, the liberalisation of imports and foreign exchange, as well as easy remittance of dividends profits and fees abroad. In addition, trade regimes devoid of public intervention and reforms that have reduced company taxes in the manufacturing sector have helped to make the business climate more conducive to investment.
Other advantages and incentives include:
# Customs import duty exemptions
# Tax holidays
# Generous capital allowance
# Locational incentives
# Income tax incentives
# Investment guarantees
# Free transfer of capital, dividends and net profits
# Quota-free access to US and European Union markets
# Member of the World Trade Organisation for Settlement of Investment
# Duty free export trade zones
# Preferential access to 15 other markets on the Economic Community of West African States (ECOWAS)
# Demonstrated commitment to additional market liberalisation.
# Acquisition under the Divestiture Programme may be granted Free Zone Status with enhanced incentives.
SECURITY OF INVESTMENT
Provided by:
# Constitution of the Republic of Ghana
# Multilateral Investment Guarantee Agency (MIGA)
# Investment Promotion Protection Agreements
Utilising Ghana as a &# 8220;Gateway to West Africa&# 8221;, an investor receives preferential access to a thriving market of over 260 million people through ECOWAS, the region's official free trade organization.
Further information on, among other things, Ghana's investment environment and the incentives, benefits and guarantees available to investors participating in the divestiture programme is available from:
Ghana Investment Promotion Centre
Tel: (233-21) 665125/9
Ghana Free Zones Board
Tel: (233-21) 780532/5
All interested investors are invited personally to inspect SOE assets, operations and records. Site visits and strategic meetings can be arranged by contacting the DIC. |
