Divestiture Implementation Committee
Divestiture Implementation Committee
The Divestitures Program.
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 program of divestiture of SOEs. The divestiture program 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 specially, the program 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 service and education.
WHEN WAS THE DIVESTITURE PROGRAM LAUNCHED?
An SOE reform program was launched in 1988, as part of Ghana's overall Economic Recovery Program. The SOE reform program consists of both measures to improve the performance of enterprises where they remain state-owned and the rationalisation of the state sector by means of the divestiture program.
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 programs. Details about DIC are set in the Divestiture of State Interests (Implementation) Law, 1993, (PNDC Law 326).
DIC's functions under the 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 trade unions, institutional and private sector representatives. The day-to-day management of the divestiture program 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. DIC is assisted by specialised sub-committees on mining, cocoa and coffee plantations and railway.
SOEs TO BE DIVESTED
At the outset of the divestiture program, 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 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.
OTHER DIVESTITURE PROGRAMS
Golden Tulip (Formerly Continental Hotel)
West Africa Mills Company
Tema Steel Company (Formerly Gihoc Steel)
Ghana Agro-Food Company (Formerly Tfcc)
The Coca-Cola Bottling Company Of Ghana Limited (Formerly Gihoc Bottling)
Suhuma Company Limited (Formerly Known As Gliskten W/Africa Company)
Ghana Oil Palm Development Company Limited
The Mining Sector
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 both 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 (principal by agricultural and informal activities).
- Relatively small, labour-intensive industrial and service sector.
The economy has traditionally depended on export of primary products, with about 60 percent of the labour force employed in agriculture. Agriculture contributes about 46 percent of the gross domestic product (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 percent of the labour force), accounting for over 40 percent of real GDP from trade and public sector services, while the industrial sector accounts for about 14 percent of GDP and employment.
Ghana began an Economic Recovery Program (ERP) in 1983, and has undertaken a series of comprehensive macroeconomic and structural adjustment reforms aimed at reversing the economic decline that had characterised the state of the economy for almost a decade. The reform program 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 percent 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.
DIVESTITURE PROCEDURE
INVITATION
The Government of Ghana is fully committed to the divestiture program 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 BID 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 SOE 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.
An investor may be asked to submit a bond to the DIC before negotiations start. The bond is for an amount equal to 10% of the offer price.
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 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 of 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.
CONTACT DETAILS
Physical Location
F/35/5 Ring Road East, North Labone,
P.O. Box CT 102, Cantonments, Accra, Ghana
Email
info@dic.com.gh
website: www.dic.com.gh
General Telephone Numbers
(233-21) 772049 / 773119 / 760281
Fax
(233-21) 773126