Global elite opinion has settled on the view that the large technology corporations owning and running the large digital platforms have to be reined in before the reach and depth of their power get out of hand.
Regulatory agencies in various guises and with different mandates – competition, welfare, preventive, security, etc. – have been tasked with the undertaking to tame the tech giants and their overbearing platforms.
In this short essay, we examine one way in which the nature of digital platforms has transformed fundamentally, through a phenomenon we have termed, hyperintegration, and how the shape-shifting effects of this transformation confuse and distract even highly informed observers, and undermine most of the interventions of regulators.
Hyperintegration refers to a process in which emphasis on the source of digital power has shifted from software code and design, or “algorithms” (moment 1), to data (moment 2) and, presently, to “integrations” (moment 3). The term “integrations” represents the logics dictating the fluid connections among data sources and algorithm stores, regardless of their nominal creators, owners and controllers.
We home in on one particular company, Microsoft, which has mastered the art of shape-shifting to an unmatched degree, and thereby amassed far more power than its often more spotlighted rivals, even whilst evading serious scrutiny because its world-dominating platform is mostly “underground” and undercover.
Quite apart from the fact that the Fourth Estate is a media organisation one usually takes seriously, many of the causes taken up by activist think tanks like ACEP and IMANI, with which this author is affiliated, often begin as inquiries by journalists seeking research support or as leaks by unhappy insiders unable to go public for fear of retribution.
On this occasion, however, Fourth Estate wasn’t really looking for research support. They just wanted a quote. They had been investigating a tax exemption package granted a hotel project under Ghana’s 1 District 1 Factory (1D1F) policy, and were sure of their grounds but needed someone in the policy space to underscore a point or two in the classic mode of quality journalism.
This author thus faithfully recited the conventional wisdom against the practice of government officials and state institutions taking policies enacted with very noble objectives and bastardising them to suit narrow, parochial, interests. Why should a hotel be granted tax exemptions through a policy meant to industrialise a country? And a very high-end hotel in one of the poshest enclaves in Accra – the Airport Residential Area – saturated with high-end hotels at that?
Incoherent policy execution with wasteful implications is of course a pet subject of this author as any frequent reader of this blog knows. High-end hotels as a special case of this phenomenon pops up every now and then, like bad jokes in a dry tale. Not too long ago, there was a bit of confusion when it came out that the Ghana Infrastructure Investment Fund (GIIF) had pumped millions into a luxury hotel and apartment complex – under the Pullman brand – in the same Airport Residential Area and that the project had stalled with little prospect of recovery of funds within the expected timeframe.
Once again, why on Earth would a country with massive infrastructure deficits in essential areas like water treatment, affordable power provision, arterial road networks etc. spend funds from one of its modest Sovereign Wealth Funds on luxury hotels? Matters would have been left at lamenting policy incoherence with the usual dark undertones of cronyism had the Fourth Estate inquiry not carried an interesting twist: the journalists weren’t even sure that the beneficiary of the 1D1F-based tax exemption, 4-MacLimited, existed. They couldn’t find any details in Ghana’s corporate register on the entity, nor of any entity bearing the name of the hotel it is building, Le Meridien. For a company deemed worthy of ~$3.919 million (nearly 50 million GHS) in tax exemptions, that felt very odd.
When the first part of the Fourth Estate’s piece came out, the “shady identity” angle was so intriguing that this author considered digging into the affair but, alas, a full plate did not allow. In the second part, however, there was a reference to his suggestion of the possibility of the name used in the Parliamentary proceedings being a “trading” rather than the legal incorporated name, a point disputed by another analyst. So, it was time to dig.
The digging continues, but the mound of dirt piling up is not pretty. First, to clear the issue of the non-existence of the entity. As suspected, it does exist. Just that the Parliamentary records misspelt the name with an extraneous hyphen guaranteeing the kind of results the Fourth Estate got.
4-Mac is actually just “4 Mac”. It is fully owned by a certain Jeffery Amponsah. The only other Director is a Vida Amankwah. Mr. Amponsah has worked closely on the hotel project with one Prince Damptey, the sole shareholder of a kind of general purpose consultancy called, Pridam Investments. Pridam also has only two Directors, Mr. Damptey and Ms. Yvonne Koufie. Messrs Damptey and Amponsah appear to be the driving minds behind the Le Meridien Hotel project, the beneficiary of the sweetheart ~$4 million tax exemption granted by the ever-beneficent Parliament of Ghana.
Le Meridien’s entry into the posher rosters of high-end hotels in Ghana has been celebrated for a while now. Originally billed to open in 2021, the 160-room hotel is now two years over schedule, with substantial works still remaining, and more delays expected. It has become part of a raft of premium hotel properties, representing more than 2000 rooms in capacity, clustered around the same vicinity of Accra. The Hilton. The Protea. The Pullman. The Southern Sun etc. All heavily delayed.
That there is an oversupply of high-end hotels in Accra already, and an even worse oversupply in the pipeline, is reflected in falling revenue per room numbers across the hotel industry in Accra by more than 50% in recent years even as everyone complain about high prices and underwhelming services.
Clearly, what is needed is additional capacity in more medium-range facilities to improve the country’s attractiveness to a wider range of tourists and to exert true competitive pressure on prices in order to boost volumes. Doing that would in turn lift occupancy rates and thus shave off any adverse impact from competition on revenues. Ghana’s own strategic tourism plan sees things this way. And, yet, here is the government breezily dispensing additional incentives for the building of high-end hotels. And a pliant Parliament rubberstamping each such request brought before it. But back to 4 Mac/4-Mac.
The founder and owner of 4 Mac – the entity at the center of the Fourth Estate investigation – is not one of the famous entrepreneurs hogging the limelight on tabloid pages in Ghana. But he is a wizened operator, a crawler in the dark underbelly of public sector contracting in Ghana. In addition to 4 Mac, he also owns Byes and Ways. Both 4 Mac and Byes and Ways are based in Ghana’s second city of Kumasi, away from the prying eyes and wagging tongues of Accra. Both entities are regularly in conflict with Ghana’s Auditor General.
In 2016, the Auditor General insisted that it could not find evidence by way of documentation, like waybills and invoices, to support liabilities purportedly owed to 4 Mac to the tune of 21.7 million GHS (local Ghanaian currency units) in connection with a 50.24 million GHS (~$13 million then) contract and was therefore rejecting them. The management of the Ministry of Energy, which had issued the said contract for 4 Mac to supply electricity poles, insisted that, notwithstanding the lack of documentation, the liabilities were not only valid but were actually 10 million GHS higher.
In the same year, state auditors flagged a purported debt of ~822,000 GHS arising from what Byes & Ways, the sister company of 4 Mac, was said to be representing as exchange rate losses due to the time gap between contracting and execution. Except that the ~8.3 million GHS contract for wooden poles had been a Cedi (local currency) contract so any talk of forex losses was pure artifice. Having been caught out so glaringly, the Ministry’s mandarins backed down.
In 2018, things came to a head when state auditors once again flagged a 28.4 million GHS debt attributed to Byes & Ways by the Energy Ministry. The auditors had, after some sleuthing, discovered that about 90% of the supposedly outstanding amount was actually effected in December 2016 and, thus, the Energy Ministry’s demand for funds from the Finance Ministry in June 2017 to clear the said debt was pure contrivance. The issue having blown over into the press, the owner of Byes & Ways/4 Mac made a ballistic entry to deny his company’s awareness of these claims being made on its behalf. With the posture of a martyr astride a cross, he demanded a judicial inquest. Needless to say, the matter died a quiet death.
Another fascinating episode involving the 4 Mac crew is the intriguing exchange of 1.1 acres of highly valuable land in the plush Roman Ridge area belonging to the Ghana Library Authority for 1.068 acres of land of far lower pedigree in the Oyarifa area belonging to Byes & Ways. Crude estimates of the difference in value placed the loss to the state in the region of more than 2 million dollars. After much huffing and puffing, that matter also lost steam.
All the above points to a worrisome intertwining of narrow private commercial interests and public sector contracting characterising deals involving the 4 Mac – Byes & Ways twin-entity.
Admittedly, seeing a long list of controversies around public money linked to a company that has been granted an incongruous benefit by Parliament at the expense of the state would bias even the most objective reviewer, but we were determined to examine the tax exemptions granted 4 Mac on their merits.
Unfortunately, it is hard. The justifications provided by the Parliamentary Committee for the ~$4 million were just plain ridiculous. Their sheer incongruity makes it impossible, however much one tries, to grant the decision any merit at all. For the reader’s benefit, the entire text is reproduced below.
In short, Parliament has decided to grant a massive tax exemption because the hotel is a “strategic investment”. But why? What makes it strategic? Absolutely nothing was said to validate the claim, except some half-hearted comments about employment generation in another part of the record of proceedings. By the job creation measure, literally every kiosk, okro farm, washing bay and petrol station set up anywhere in Ghana is a “strategic investment” on some defensible scale.
Of the list of 1297 items to be imported by 4 Mac in financial year 2022/2023, for which duty and taxes have been waived by Parliament, our analysis suggest that more than 70% probably shouldn’t be imported by any entity truly desiring to strategically create jobs in Ghana. They include pantry mops, fly killers, kitchen cabinets, glass doors, wall shelves, hand basins, sinks, Mosaic tiles, porcelain wares, etc. etc.
Think about it. The Parliament of Ghana grants tax waivers of ~$4 million to a company under the country’s flagship industrialisation policy (1D1F) so that they can import sliding aluminum doors, handrails, tiles, wallpaper and specialty flooring.
Not to forget toilet-roll holders and soap dispensers!
What is even more bizarre about the entire spectacle is the timing. The request for tax waiver was presented to Parliament in July 2022. Throughout the period it was traversing the bureaucracy there, the country was in the throes of a debilitating balance of payments crisis partly occasioned by the scarcity of dollars. The government, furthermore, was in tough negotiations with the IMF, during which, for the umpteenth time, tax exemptions and other anti-revenue practices were under discussion. Yet, here was the national Parliament, at the instigation of the Ministry of Finance, granting tax waivers so that an aspiring hotelier could import “back of house shower enclosures” with scarce dollars without paying duty.
Meanwhile, the government was promising things like the below to the IMF.
What is the point, seriously, of all this report-publishing and tap-dancing around the issue in successive IMF programs if no one really intends to stop abusing the use of tax waiver provisions to enrich favoured business people?
This is what the IMF said on June 30th, 2015, when its team visited Ghana to review the country’s previous program:
The team notes, however, that more needs to be done to further enhance tax administration and eliminate tax exemptions to improve the revenue performance over the medium term.
This is what it said on 10th February 2017 during another mission:
The new government’s intentions to reduce tax exemptions, improve tax compliance and review the widespread earmarking of revenues should help in this regard.
This is what it said on 19th July 2021:
Measures that could be implemented relatively quickly include rationalizing VAT and import duty exemptions
In the meantime, the authorities could proceed to remove non-standard statutory VAT and import duty exemptions, particularly those that disproportionately benefit higher income groups
The reader would no doubt have guessed that this is a song that has been played from the remotest antiquity. Here is the IMF again on 14th April 1999:
Revenue is projected to rise to almost 19 percent of GDP, driven by the curtailment of tax exemptions and improvements in administration, including the introduction of the VAT and the taxpayer identification system.
The reader must be getting the picture by now. But even assuming that politicians in Accra never really take these commitments seriously, it is still valid to ask if the IMF itself does.
Well, there is something even more pernicious at work. The government has indeed been removing tax exemptions. Just not from favoured business people. For ordinary entrepreneurs and other business actors, however, the IMF commitments are indeed relied upon to deny tax incentives critical to their ability to grow, all the better to create room for favourites and cronies to benefit.
For example, the Ghanaian Chamber of Agribusiness blame the refusal of the authorities to grant tax-based incentives for critical imported inputs and machinery for declining productivity in the agroprocessing arena, notwithstanding agroprocessing being a clear 1 District 1 Factory priority.
Farm mechanisation inputs and industrial juicing equipment are stuck at the ports even as rich wannabe hoteliers get millions of dollars in tax exemptions to cart in their precious porcelain massage beds from Milano.
[This short essay is a preliminary response to a report issued yesterday by a Ghanaian parliamentary committee in connection with a joint IMANI – ACEP investigation of a sweetheart gas deal between Ghana’s national oil company, GNPC, and a private company called, Genser.]
As everyone now knows, Ghana is in the throes of full-blown national bankruptcy. Unable to pay its debts, the government has reached out to the IMF for a bailout program. Central to that program is an effort to dial down the rate at which the country is accumulating losses in its energy sector due to waste, mismanagement and cronyism. The World Bank, which is playing tag team with the IMF on the salvation plan, also has energy sector waste and inefficiencies in its sights. Analysts believe that energy sector liabilities are on course to eventually hit $12.5 billion, more than four times the size of the ongoing IMF bailout. One group within the value chain, independent power producers (IPPs), are already owed nearly $2.3 billion.
When analysts at IMANI and ACEP saw evidence that a private sector operator called, Genser, had secured a deal to obtain gas at a price less than 40% of what the seller, Ghana’s national oil company GNPC, itself says it costs to obtain the commodity, they naturally decided to dig into the legal agreement since it is of such wasteful stuff that the bigger mess has been created. It was later discovered that another agreement had been signed that will bring total discounts to nearly 75% of the commodity value. After a thorough review of the evidence, and extensive interactions with their sources, IMANI and ACEP analysts published a series of essayscriticising the arrangements and demanding urgent redress.
A few months following the publication of the IMANI-ACEP concerns, the select committee in Parliament responsible for the mining and energy sectors decided to hold hearings on the matter.
First to be called on 27th September 2022 was the GNPC. Subsequently, on 18th October 2022, a representative of IMANI and ACEP appeared before the committee. It was apparent from the outset that the ruling party’s representatives on the committee had made up their mind on the issues. For example, they spent an hour quarreling with the representative over the meaning of the “sweetheart” term used in the two organisations’ description of the gas deal. Then the rest of the time interjecting and openly attacking the position of the representative, the very witness they themselves had invited to ostensibly get to the bottom of the issue.
In hindsight, IMANI and ACEP should not have participated in these prejudicial proceedings at all. The committee sittings lacked even the most rudimentary elements of due process. There were no clear terms of reference. No proper concept note had been prepared in advance to outline the areas of contention and expected outcomes. No briefings were circulated to witnesses ahead of time to pinpoint matters of emphasis and thus to aid preparation. At any rate, rather than the typical question and answer format of a serious parliamentary enquiry, the exchanges mostly ruling party representatives on the committee chastising the IMANI-ACEP representative for the organisations’ views and he, in turn, holding his ground. Nothing by way of serious effort to elicit insights.
Many months after the committee sittings, word reached the two Civil Society Organisations (CSOs) that the chairperson of the committee was doing everything possible to ram through a version of the report cobbled together solely to whitewash the Genser gas sweetheart deal, and was facing resistance from minority/opposition members of the committee. Unable to obtain consensus, he finally decided yesterday, the 16th of August 2023, to release the report anyway, with a half-hearted concession to the fact of it not being a product of committee consensus.
The report itself turned out to be a rather sad excuse of technical writing. The ranking member of the select committee immediately disassociated himself from the document in its entirety, lamenting the “factual inaccuracies“, “baseless assumptions” and facile conclusions on the central “value for money” issue.
Before delving into the embarrassing details, the reader is reminded of the primary basis of the original concerns raised about the GNPC-Genser sweetheart gas deal: the overpowering musk of regulatory and state capture, the suspicions of insider dealings, and the strong sense of collusion against the interests of Ghana by those who should hold fealty to Ghana’s cause. Now, to the committee “report”.
The 16-page document starts with the customary recapping of the events leading to the committee’s decision to intervene. It then lists the organisations invited to provide evidence and the scanty set of documents relied upon. As if in a hurry to get to its preconceived conclusions, the report then rushes through the evidence, often devoting just two or three sentences to the testimony given by the invited organisations, completely ignoring the vast majority of the highly technical materials and deliberations submitted by the few key expert witnesses it deigned to call. Below, the reader is invited to consider the recounting done of the hours of careful breakdown analysis presented by two important state-owned organisations, Ghana Gas and the Volta River Authority (VRA).
With breathless enthusiasm, the report’s drafters then settled on the highlight of their show: the “findings of fact”, except that this section is actually riddled with confusing premises and inferences as well as a partial reporting of arguments between different members of the committee. Everything but actual facts.
In fact, apart from the two organisations at the center of the impugned deal – Genser and GNPC – no testimony produced during the entire deliberations backed any of these “findings of facts”, much less the hasty conclusions of the committee. Both VRA and Ghana Gas essentially vindicated the positions canvassed by IMANI and ACEP. The invited regulators, namely the Public Utilities Regulatory Commission (PURC), refused to be drawn into the fray by suggesting that the deal between the state-owned GNPC and Genser occured outside their purview, in the “deregulated market”, whilst the Energy Commission was either not invited or refused to appear. The Energy Ministry, on its part, denied all knowledge of the commercial details of the transaction.
In order not to bore the reader, we will focus on the whitewashing attempts and expose the hollowness of the committee’s work in that regard since these elements most affect the public interest.
At the heart of the IMANI-ACEP case is the simple fact of gas being underpriced by a state-owned producer, GNPC, to the benefit of a favoured private operator, thereby generating losses to the detriment of Ghana, a country saddled today with crippling energy sector debts. As has been explained several times, the GNPC itself has represented to regulators that it cost it on average $6.5+ to obtain a unit of gas.
It does not matter that some sources are cheaper than others. In commercial analysis, its weighted average cost should guide how it prices the product for onward sales. Observe carefully that the weighted average cost indicated is for the commodity itself, and that costs for logistics/transportation, such as gas pipelines are presented differently. The raw cost of the gas is what is referred to as the “commodity cost”.
Given this fact, why would GNPC agree to sell the gas to Genser for $2.79 per unit, and commit to a further downward revision to $1.72 per unit in the near future? This was at the core of the IMANI-ACEP complaint.
After its pretend-analysis, the committee concluded that this is not an issue because GNPC is also benefiting from Genser by using Genser’s pipelines. No attempt is made to explain how come Ghana Gas was able to secure much higher prices from Genser just before the switch to GNPC without any significant general shifts in market pricing. Why did the so-called pipeline services not matter in the prior arrangement with Ghana Gas?
To get to the bottom of this trickery, one must unpack the justification produced by Genser and endorsed by the committee.
In simple terms, the gas ought to cost Genser $6.08, however, Genser has provided a pipeline for the use of GNPC and charged $3.29 for it. Thus the net effect on each unit of transaction is a discounted final price of $2.79 per unit of gas bought. There are a million and one reasons why this explanation makes no sense, quite apart from the total lack of interest on the part of the committee to take and review testimony of pipeline ratemaking methodologies, value for money, and gas trading best practice.
First, the netback is tied to each unit of gas sold to Genser itself not necessarily to volumes of gas belonging to GNPC that transits through the Genser pipelines, potentially for sale to third parties. There is absolutely no evidence before the committee of GNPC using the pipeline to transmit any gas to any customers other than Genser on which it may have made money by charging those customers the transport tariffs that would have otherwise gone to Genser were it not for this strange barter trade.
Second, the $3.29 cited comprises costs for transiting gas through both trunk and branch pipelines. What is crazy about this arrangement is that Genser’s pipeline complex has been designed to enable Genser deliver gas it has bought from GNPC to its own customers. They are effectively Genser’s distribution network. Whatever investments Genser has made into those pipelines are amply recouped from transport margins embedded in the final power prices Genser obtains from its predominantly goldmining customers. What exactly is the business of GNPC subsidising the pipelines Genser has built to enable it operate its business model?
Third, building on the previous point, GNPC’s responsibility as a bulk seller is to deliver gas to Genser at a transmission terminal, or, as they say in the parlance, a metering and regulation station. The pipelines leading to that terminal would be GNPC’s responsibility. Indeed, GNPC utilises public owned infrastructure to deliver gas from their ultimate source to this point of contact with Genser’s pipelines. The transportation costs of that phase are not accounted for anywhere in the model being championed by the committee. The logic being forced on the nation is that after taking delivery of the gas and transporting it through its own pipelines to locations of its own choosing, Genser must now be compensated for the trouble. This is akin to a trader from Techiman asking for a 60% discount on goods brought from Tema port and on sale in Kumasi because, in her view, she needs to offset the cost of the vehicle transporting the goods to Techiman.
Fourth, the committee, in its haste, in its total disregard for fact-based technical analysis, and in its burning desire to “save Genser and damn the CSOs”, decided to rely entirely on hypothetical data and scenarios of what GNPC stands to gain if it utilises the so-called reserve capacity in Genser’s pipelines.
Note that all this is hypothetical stuff. The committee cannot evade the basic question: on what basis was the $3.29 pipeline tariff (which has been used to discount the acknowledged real price of $6.08 per unit of gas) computed, and by what process was it determined to be fair when as presently configured the Genser pipelines simply represent the downstream distribution network of company based on current customer locations? How much do other gas wholesalers with pipelines charge for pipeline transportation? And why wasn’t real market data used to benchmark the $3.29 figure? Has GNPC ever transported volumes of gas sufficient in value to offset the tens of millions of dollars of discounts obtained by Genser since 2020?
As analysts have already argued, Ghana Gas has the largest pipeline network in Ghana, and its average transportation tariffs on pipelines with a greater combined length than Genser’s fall below the PURC regulated threshold of $1.288.
Thus, even if one were to grant the preposterous contention that Genser needs to be compensated for using its own distribution pipelines to transport gas to its own customer sites to generate power, there is no reason why the net back charge shouldn’t be, say, $0.919, as Ghana Gas prices transmission on some of its major routes, rather than the $3.29 preferred by the committee.
The argument that GNPC has been saved cost because it is not delivering the gas to plant gate using its own infrastructure is, also, wholly bogus since should that have been the case, GNPC would simply have added the transport margin to the price it charges Genser, bringing the cost to nearer $7.1 rather than $6.08.
Fifth, any kind of barter arrangement based on the notion that Genser is a general pipeline transporter capable of delivering third-party gas on behalf of GNPC so that it can offset the resultant charges against the commodity gas delivered to it (whether or not the volumes of gas delivered to it exactly matches those delivered to third-parties) would be based on a patent illegality as Genser does not have the requisite licenses to operate as a general transmission utility. It has been tolerated on the basis of using its own distribution network to service gold mines in the unregulated power sector. The committee, and in particular its chairperson, should not become an enabler of illegal conduct in Ghana’s already fraught energy sector.
To the extent that the position taken by the committee in its ill-timed, ill-judged, and ill-considered report does not have Ghana’s interest at heart, activists will not relent in continuing to cite the GNPC-Genser case as one of the reasons they are highly sceptical of the ongoing IMF/World bank – driven effort to reform Ghana’s energy sector. And, indeed, why they remain sceptical of the viability of the overall undertaking to save Ghana from the bowels of bankruptcy.
It follows clearly from all the preceding analysis that the risk of the GNPC-Genser deal leading to $1.5 billion in accumulated losses is now more elevated than ever due to the ill-advised findings of the select committee’s report. One cannot sugarcoat such an alarming prospect. The only word fitting for the occasion is: unpatriotic. May those whom the cap fit wear it.
It is called the “starvation cycle”, a phenomenon whereby many non-profits, charities, NGOs, social enterprises and other social organisations are denied core resources to build capacity, and are thus also denied a path to sustainability. Even in rich, progressive, societies like New Zealand, the result is a decline in survival rate by 45% in the past 6 years.
The root cause of most of these challenges is constrained capacity. The Innovation Network, a best practices research body, conducted a series of studies into the capacity of non-profits and other social organisations to manage program evaluation between 2010 and 2016. The findings revealed very worrying resource constraints.
For instance, only 8% of organisations can afford dedicated evaluation staff, down from 25% in 2012. Yet, for their funders and other major stakeholders, impact evaluation is the most critical yardstick for trust-building and an absolute necessity to sustain a supporting relationship. But when 84% of nonprofits spend less than the recommended levels on evaluation (up from 76% in 2010), corner-cutting is inevitable.
The inability of social organisations to retain the right staff and invest in the systems needed for critical functions like evaluation feed into severe fundraising limitations, which perpetuate persistent funding shortfalls. For example, 87% of nonprofits surveyed by the Innovation Network do not benefit from pay-for-performance opportunities, with 43% lacking the capacity altogether. 79% of respondent organisations say lack of personnel time is the biggest barrier.
Meanwhile, competition for grants and other flexible funding is intensifying at a serious pace. According to the Society for Non-profits, only 7.5% of grant applications succeed.
At first glance, capacity crunch and personnel time constraints of this nature seem perfectly made for digital intervention. A whole software industry has been built on the productivity needs of business. Social organisations, it would seem, only need to reach. Unfortunately, only 16% of such organisations can be classified as “digitally mature”. A Hewlett Foundation “field scanning” report on social organisations’ capacity issues reinforced this fact by placing at the very top of its list of critical gaps: “Technology access, digital security, and overcoming the digital divide.”
The spectacular rise of ChatGPT in the public consciousness in the last few months heralds a new era of digital technology. One where the significant barriers of classical technology adoption have been substantially lowered, paving the way for social organisations to transcend many of their current limitations.
That ChatGPT promises to democratise access to Artificial Intelligence (AI), the most productivity-focused segment of the digital spectrum is an added bonanza. Imagine the prospect of evaluation reports, fundraising pitches, annual statement drafts and complex project financial analysis all generated in a few minutes by non-specialist interns. Imagine the impact on non-profit capacity.
Even more intriguingly, ChatGPT may offer capabilities for actual service delivery, not just for internal organisational development. For example, a recent McKinsey report by the global consultancy claimed that “[t]hrough an analysis of about 160 AI social impact use cases,” they have “identified and characterized ten domains where adding AI to the solution mix could have large-scale social impact. These range across all 17 of the United Nations Sustainable Development Goals and could potentially help hundreds of millions of people worldwide.”
Consider the case, for instance, of Liberia, which has just 300 doctors at home for a population of 5.3 million (up from 25 at home in 2000 when the population was ~3 million). There are two psychiatrists, six ophthalmologists, eleven pediatricians, and zero – yes a grand zero – urologists. Imagine the good that an organisation like Last Mile Health can do if an AI system could equip its community health workers to perform at near specialist-level. It is at this point that it gets a bit more complicated.
The idea of getting an AI system to perform specialist-level tasks, hopefully at lower cost and with greater productivity, is an old pursuit, most prominently in a branch of AI called “expert systems”. The government of Japan, for instance, tried for two decades (from 1982 onwards) to take expert systems mainstream by dramatically improving their interface with ordinary humans to thoroughly lacklustre effect. Their use has been confined to enterprise ever since.
However, in 1992, a Management Information Systems expert called Sean Eom surveyed enterprise deployments of expert systems and found strong concentration in operations optimisation and finance, the same areas of emphasis presented above for social organisations today.
Today, the original expert systems model is no longer very fashionable. Competing branches of AI like machine learning and natural language processing (NLP) have all but taken over. ChatGPT belongs to the NLP branch of AI, in particular a domain known as “large language models” (LLMs), which is fast catching up with machine learning as the dominant form of AI-based productivity enhancement.
Many of the most promising AI toolkits for addressing the capacity crunch of social organisations, and by implication the starvation cycle, are LLM-based, and the signs suggest that this trend will intensify because of ChatGPT’s cultural influence. It is thus critical for social organisation leaders to understand the limitations of the LLM-paradigm and develop their early-stage AI strategies cognisant of those limitations. Below we outline a simple high-level rubric to help leaders think through their organisational situation.
Do you have an “Expert Network”?
In a recent essay, I emphasised the point that LLMs and similar big data-driven systems are about statistical averages. They take snapshots of internet-scale caches of data and then make safe bets as to the most likely answer to a query. The best experts are, however, top-notch for the very reason that they generate insights that are often skewed against the average. They exhibit positive bias.
A social organisation must thus identify the most critical knowledge domains underlying their expertise and unique contributions to society, and adopt a low-cost means to curate a wide enough digital network of experts whose work touches on those domains. Web-crawlers and other simple data miners can be used to track the bets, predictions, assessments and scenarios regularly generated by this network.
Leaders should, however, bear in mind that this is not about an “advisory council” and there is no need for a formal relationship to exist with these experts at this stage.
Are you training “Knowledge Analysts”?
All LLMs are prompt-dependent. For ChatGPT or similar systems to generate the right sequence of answers and then piece them together, someone skilled in conversing with bots is required. A good knowledge analyst enjoys the “insight loop” game where learning grows by subtle shifts in repeated articulations.
For example, a detailed review of ChatGPT’s recent performance on a Wharton MBA test emphasised the critical importance of “hints” from a human expert in refining the bot’s responses. Because these are uncharted waters, organisations must experiment to find the right personnel fits and alignments.
Do you have a “Knowledge Base”?
Systems like ChatGPT are all about presentation. They are trying to write like an averagely educated human. Their trainers scour the open internet and other easily accessible databases to assemble large samples of human writing to drive this meta-mimicry effort.
For LLMs to become truly useful, besides spouting plain vanilla generics (with the occasional giant blooper), they will need access to more specialised sources of data with built-in reinforcement loops to emphasise what matters most.
In a 2019 working paper, I broke down the generic structure of modern computing into “data”, “algorithms” and “integrations”, and explained why integrations are the real driver of value.
Social organisations can address this issue by formalising the stock of data they and their partners carry, specifying rules of access, and enabling secure integration to create trusted knowledge bases on which open-source LLM algorithms can train to deliver bespoke content for services. By so doing, they address the ancient “knowledge bottleneck” problem in expert systems – mimicking platforms like ChatGPT.
Are you open to Architectural Redesign?
Effective use of LLM-type AI does require the organisation to increase its knowledge-centricity, its overall vigilance about where unique insights, real expertise and learning loops are embedded into its processes.
Doing this effectively may see generalist knowledge analysts acquire greater importance than some hallowed specialists, even threatening certain hierarchies essential to the integrity of the organisation.
Are you conscious of the emerging Service Provision Network?
The current approach to building LLM training sets is to take data from anywhere and mash it without regard for intellectual property rights. Already, several Big Data-AI companies like Stable Diffusion are facing lawsuits for trying to externalize their costs. And ChatGPT has been excoriated for using sweatshops in Africa.
Going back to the Data-Algorithm-Integrations (DAI) framework introduced earlier, leaders need to pay attention not to source systems without careful disaggregation of those three nodes.
Emerging AI platforms targeting the social sector like FundWriter.ai come into organisational premises with pre-set models based on which they generate outputs like reports. Apart from the embarrassment of potential plagiarism, IP infringement is possible. The DAI framework favours the approach being taken by platforms like Levity which provide more tools for organisations to develop their own proprietary knowledgebases.
Creating knowledge-pools with likeminded organisations around the world under trusted licensing frameworks and implementing IP risk screening layers should consume far less resources than would have been the case just a few years ago. This is due to the fast-dropping costs of Integration-as-a-Service platforms that now enable large organisational networks to integrate data resources and even workflows that generate data.
The data privacy, cybersecurity, and infrastructure concerns arising in these contexts are also often taken care of by these systems out of the box though organisations should always engage the vendors at every step of deployment.
Whilst LLM-based, expert system mimicking, platforms like ChatGPT are still in their infancy, they offer strong hints of how AI will transform organisations. Due to strong capacity constraints, social organisations have not taken full advantage of the current digital boom. They have a duty to their tens of millions of beneficiaries not to let the coming AI bonanza pass them by.
In February 1967, Ghana hosted an International Trade Fair on new grounds near the sea in the historic coastal town of La (also known as “Labadi”).
The purpose-built facility was a gleaming sprawl of stalls, exhibition stands, majestic emporiums, and lush tree-lined avenues.
Over a three week period, the magnificent African Pavilion became the center of gravity in an affair that had drawn 2000 commercial and industrial exhibitors from 33 countries to this breezy corner of Accra.
The international Ghanaian-Polish design team responsible for the Trade Fair’s design spared no effort in imbuing the structures with architectural significance. Trade Fair was to serve as a pulsing artery connecting the redevelopment of old coastal towns like Labadi with the modernisation of the capital’s waterfront and the broader urbanography of commerce and industry in what was even then a serious contest between planning, on one hand, and overpopulation and poverty, on the other hand.
None of those strategic objectives have been met in nearly 60 years. In today’s policy language, they are recognisable in some contemporary projects such as the following: Accra Marine Drive, the Accra Urban Transport Project, Airport City Phase 2, and, of course, the Ghana Trade Fair Redevelopment Project.
Sadly, every one of these projects is plagued with confusion, rampant insider dealing, perennial delay, and disconnection from its original urban-transformation and light-industrial objectives. But in this short piece, we intend to only talk about the Ghana Trade Fair Center (“Trade Fair”) redevelopment affairs.
From the plans based on which Trade Fair was constructed by the Ghana National Construction Company over a five-year period, it is clear that the Osagyefo (Kwame Nkrumah) government saw the project as strongly linked to Ghana’s export promotion goals and Pan-African trade hub/gateway ambitions.
Long before the now famous AfCFTA would be birthed, the blueprint for the eventual fair that opened in 1967 underscored the need to highlight both “made in Ghana” products and trade across African countries in equal measure. In a kind of early version of today’s “single African market” dream.
The Trade Fair center in the years after its launch served the purpose of showcasing innovations in production, especially of manufactures, across the country that would otherwise not have come to the limelight. Small businesses, maverick inventors, industrial startups in suburbia, and cooperatives in the hinterland were particularly keen to secure stands during fairs to catch the eyes of potential customers and investors. But they were equally keen to attract press attention and, directly or indirectly, the focus of officialdom. In the first decade or so, Trade Fair management would produce meticulous catalogs listing the exhibitors and their contact details to facilitate such discoveries.
For example, Ghanaian scientist, Narh Naatey, was one of the early researchers who honed in on the issue of malaria parasites developing resistance to chloroquine. So, he invented a herbal formula called Nasra tablets to circumvent the parasite’s learning behaviour. But how to commercialise and distribute? In 1988, he showed up at the Trade Fair exhibition of that year and displayed his wares. The Ministry of Science & Technology saw his display and committed resources to develop and promote the product. Difficulties navigating the bureaucracy of the Health Ministry ultimately prevented this early product from becoming Ghana’s own Coartem well before Coartem was invented in 1992. But at least Dr. Naatey got a fighting chance because the Trade Fair brought him into contact with supporters. Such was its influence.
As with all state-owned/run facilities in Ghana, the facilities of the Trade Fair soon started to suffer neglect. Poor maintenance practices crept in steadily, and some of its world-class architecture began to fade. Nevertheless, the emphasis on export-promotion, foreign investment (FDI) into local manufacturing, and light industry (especially by small businesses) never wavered, as one can easily glean from a centerspread in the Daily Graphic edition of 13th February, 1976.
In those days, the Trade Fair and its periodic exhibitions were clearly seen as a major fulcrum around which small businesses could accrete visibility, support, and growth. And through business growth, the country’s industrial ambitions, FDI attraction hopes and export promotion plans would all, hopefully, come together coherently and cohesively.
As the country’s economy went through the ups and downs of the 70s and 80s, Trade Fair’s maintenance issues continued to mount. Successive governments tried to hold things together, but by the early 90s, it was clear that something drastic needed to be done. The decision was taken to redesign the business model by transforming the Trade Fair grounds into a permanent hub for business promotion, thus ending the overreliance on the annual fairs and occasional large exhibitions (such as the quadrennial ECOWAS fair). Businesses were invited to do more at and with the Trade Fair, as the ad below in 1992 shows.
Thus began the practice of more and more businesses situating various facilities permanently on the Trade Fair grounds. Some small businesses obtained favourable locations in easy reach of Accra’s bustling center to produce and sell their various wares. Trade associations acquired offices there. Rent became a major source of non-state income for the operators of the Trade Fair, now reincorporated as a limited liability company and placed on a path to full commercial sustainability.
Management issues, however, continued to dog the Trade Fair. Political appointments at the helm, as it always does, blunted competitive edge and encouraged poor planning and execution. After a particularly disastrous ECOWAS Fair in 1999, the Chief Executive was suspended and committees set up to probe general management failures. But little by way of radical change occurred. Trade Fair continued to fall short of the lofty heights set by the original vision.
Nevertheless, despite the struggle to fulfil its bigger vision, Trade Fair still strove to advance the goal of showcasing entrepreneurial efforts towards local industrialisation. In 2006, for instance, a major focus of the international fair held that year was on promoting joint ventures to strengthen the ability of local companies to harness Ghana’s natural endowments.
By 2015, weak management had ensured that the new business model had been so poorly executed that resources were simply not available to properly maintain the facilities. Pictures started to circulate in the press of rotting buildings and leaking roofs. The hub of the 1967 African Pavilion (nicknamed “the round pavilion”), an architectural jewel of great historical significance, was slowly decaying.
The government was jolted into action. A comprehensive plan for redevelopment that had been in the works for eons was expedited to completion. A competitive tendering process then followed, overseen by PricewaterhouseCoopers (PWC). The Reroy Group emerged as the winners, and efforts began to develop a roadmap and strategy for implementation. Before any of this could come to fruition, the government of the day lost power in the 2016 general elections.
The new government, as is the custom, sacked all the senior officials (about three-dozen in one go). It then installed an optometrist at the helm of the company. And appointed a shipping cargo millionaire as Chair of the Board. The new Chief Executive wasn’t exactly known for previous work turning around complex industrial and commercial real estate facilities, but she had something far more important going for her: she had been an executive of the ruling party in one of the party’s overseas branches in Georgia, United States.
Efforts began to systematically dismantle every single block in the Trade Fair edifice. The new masterplan for redevelopment was promptly ditched. Adjaye Associates, being the flavour of the month in Ghana, was called in. Large multimillion dollar projects were being parceled and dished to the firm on a silver platter, and Trade Fair joined the list. As is customary, even the pretense of a competitive bid was unnecessary. Architects who had won fair design bids in connection with the project protested, and were routinely ignored. But this was only the beginning.
In an act of extraordinary brazenness, the new Trade Fair leadership sent bulldozers onto the grounds and literally stripped it of most of its historic architecture. The Round Pavillion? Desecrated. The famous Adegbite cubes? What is that? Pulverised. The Chyrosz-Rymaszewski umbrella cones? Please, get real! Violated. It is as if Attila the Hun had arrived in Rome purposely to erase every megastructure of note in the Eternal City. In one short series of overnight raids, Ghana’s only piece of significant industrial-architecture heritage was severely brutalised.
This alarming spectacle of cultural annihilation triggered nothing by way of serious protest among the Ghanaian elites. Apart from protesting the loss of contracts to regime favourite, Adjaye Associates, the architectural profession stayed eerily quiet. It is quite likely that the entire episode would have gone unreported had the new Trade Fair management not also proceeded to wipe out the small business operators who had been attracted to the grounds since the 1990s to contribute their quota to Ghana’s industrialisation dreams. The likes of Colour Planet, a printing press, had their equipment damaged beyond repair when the bulldozers brought down their factories.
It is really hard to fathom how this near-vandalism could have emanated from whatever new masterplan Adjaye Associates had put together. How can a world-class architectural design studio come up with a redevelopment plan that fails to fully preserve vital historic architecture and make accommodation for pre-existing viable economic activity? It is possible to understand how political authorities in a country like Ghana would occasionally oversee a planning process so shoddy that standard heritage preservation and economic rights considerations are tossed aside, but it is much harder to envisage how their conduct might be enabled by world-class architects.
Anyway, in one fell swoop, the new management of Ghana’s Trade Fair expired the last traces of the original vision of the site. The celebrated Ghanaian-Slavic architecture is mostly gone. The network of small businesses providing jobs and maintaining some industrial vitality in that crucial urban enclave has been dissipated. What was created in their place?
Characteristic of Adjaye-inspired mega-projects in Ghana, what we have now are grand and fantabulous futuristic landscapes on paper. Something that looks like a compact version of the hanging gardens of Babylon, complete with snazzy youtube videos has been making the rounds.
Three years after stripping the historic trade fair of its vitality, the government’s policy has been a whirlwind of confusion. This month, it hosted an investor conference to attract partners. Virtually no serious international financiers showed up. A group of politicians and their assigns gathered to repeat the same tales of coming grandeur and the spectacular rise of a “trade gateway to Africa” from the denuded plains.
What these visionaries didn’t do was update the nation on how much of the $1 billion that was supposed to be unlocked for primary site development on more than 30% of the land has come in. After the fanfare and flourish following the agreement with “Stellar Holding” of Singapore, nothing has been heard since.
Nor did they disclose why all manner of random high net worth individuals are being fixed with patches of prime real estate for the usual combo of condos, retail complexes, and entertainment centers.
The long promised convention center to transform the site into an events tourism hub has found no takers. No investor has seriously committed to developing the exhibition pavilions. And site development and utilities are now five years behind schedule. It is true that some potential future tenants, like Africa Datacenters Corporation, have promised to cite their facilities in the new enclave, but that is, obviously, entirely dependent on the site redevelopment happening.
For now, all we have on the site is rubble:
Weedy patches of low grass:
And abandoned heaps of construction sand:
Three years after gutting and stripping a site of great historic importance, Trade Fair management has not even bothered to restore the pavement network:
All the livelihoods and rich heritage lost would, perhaps, have been justifiable sacrifices if the new management and their political bosses were, in fact, working hard to restore the original vision of turning the enclave into a true hub for export promotion, industrialisation, and FDI attraction, with small businesses at the heart of a galaxy of enabling policies.
Instead, what do we have here? Speculative real estate deals to cover yet another portion of old Accra with an unproductive and elite ego-stroking concrete jungle. Just so that a few people can grow vulgarly rich at the expense of the rest of the country.
If there is a better example of the ailment afflicting modern Ghana, let’s hear it; we are all ears.
In the decade since the UK’s cheerleaders unceremoniously dropped the “Cool Britannia” tagline, the country, ever adaptable, has been steadily reinventing itself as a global green economy powerhouse.
In setting out to decarbonise all UK sectors by 2050, the government has never shied away from its global leadership aspirations.
So, imagine the angst when the government’s own advisory panel returned a sobering verdict suggesting lost ground in recent years. Newspaper headlines blazed neon: Britain has lost global leadership. The news was even considered momentous enough for international newswires to include it in their summary bulletins.
Except of course, as with all these brand-heavy, long-range, policy things, the UK’s global green leadership standing was never that straightforward. And claims of Britain “losing” said standing go back nearly a decade.
Meanwhile, the geopolitical competition about who can outgreen whom fastest and smartest also turns the spotlight on global laggards and whether deliberate lagging could itself be wielded by some countries as a counter-strategy.
The European Union has responded to that fear by introducing a policy to tax the carbon content (in its so-called “CBAM” policy) of imports in a move obviously designed to penalise producers in countries with less ambitious carbon-cutting and greening plans. Unsurprisingly, activists in the Global South have been observing these proceedings with extreme suspicion, whilst some specialists, divided though experts are on the CBAM, warn of adverse fiscal impact. Some even hint darkly of a new era of eco-imperialism, though there are also some on the political left that have embraced the CBAM in principle.
In light of the above geopolitical intrigues, I explore in this brief essay the journey the UK has been on so far and chart its successes and failures at a very high level. I discuss how decarbonisation of the electricity subsector has been so much smoother compared with the case in the transport and heating subsectors. Finally, I investigate, in preliminary fashion, potential “discontinuities” that might alter the transitional trajectory defined by the country’s policies.
As a country that has made decarbonisation a central feature of its global soft power diplomacy, its experience offers many interesting insights into the limits of political commitment in the presence of techno-economic hurdles.
Policymakers in countries at different stages of their green transition shift, and notwithstanding current political commitment levels, may still learn a thing or two from keeping tabs on what jurisdictions perceived to be on the cutting-edge have been running into on the decarbonisation frontiers.
This is a long-read. The short version is as follows.
Two sectors of Ghana’s economy are specifically identified in the country’s recent IMF program for critical attention because of their contribution to the country’s debt debacle: energy and cocoa. The story of Tema Oil Refinery exemplifies what has gone wrong with Ghana’s energy sector.
Tema Oil Refinery has big problems that require hundreds of millions of dollars and sophisticated investors to fix.
Such money and investors will not come unless the country’s leaders are genuinely interested in an above-board transaction, and are willing to spend the taxes they have collected in TOR’s name to clear the muck and give serious investors a fresh chance. It is clear that they are not. They are only interested in a deal that will keep their cronies positioned at vantage points.
So, for many years, various shady deals and shadowy investors have been paraded as saviours of TOR, of which the latest are Decimal, Legacy and Torentco.
None of these entities have what it takes to truly revamp TOR. The opacity, underhand dealings, shadiness and murkiness risk becoming a breeding ground for criminal and underworld activities, destroying what little reputational value remains in TOR. Already, there are fears that some of the partners proposed for the Torentco transaction may be embroiled in sanctions-busting activities.
An open and competitive process should be pursued to bring fresh management not beholden to any political elite factions. The unencumbered management should be empowered to run a totally above-board process to attract investors with deep pockets. Accompanying energy sector reforms, strict use of energy taxes for their intended purpose, and strict price deregulation would need to be in place to assure such investors.
Any shady leasing of assets to shadowy operators will lead to the compounding of TOR’s debts, continued obsolescence of TOR’s infrastructure, and an eventual reckoning in which the company’s situation becomes irredeemable and unsalvageable.
Born of Big Dreams
The Tema Oil Refinery (TOR), located in the country’s coastal industrial base, is a product of Ghana’s post-colonial industrialisation drive that saw the first government after independence engage international investors as strategic partners in a number of vital industrial projects.
The same process that brought foreign financiers and engineers to build, own and run TOR in 1963 also gave Ghana the Volta Aluminum Company (VALCO), Akosombo hydroelectric dam, and Ghacem, still among the most important anchors of Ghana’s industrialisation dream.
A wave of nationalisation, however, swept the country in the 1970s and by April 1977 TOR was fully state-owned. It is a sad testimony to the perennial decline of state capacity in Ghana that since then TOR has lurched from one crisis to another.
The Rude Awakening
From the point of nationalisation onwards, the refinery did not see any serious renovation or capacity boost until 1989. Even then it was widely recognised that capacity expansion and technological retrofitting and upgrading were essential to the ongoing viability of TOR. But then again a long list of state-run industries were in the same boat.
In 1963, when the seven year development plan was launched, several state-run industrial concerns were placed on a list for capacity expansion and upgrading by 1970 at the cost of £1.6 million ($4.5 million), or the equivalent of $45 million in today’s money. By 1992, not a single one of them had seen any serious investment for transformation.
Halting steps to redemption
A $200 million loan from Korean investors enabled the expansion of the Tema Oil Refinery (TOR) to its current 45,000 barrels per day capacity by the late 1990s.
When a new government took over from the Rawlings government in 2000, a long courtship with Korean government and private entities, especially Samsung, ensued. At stake was a fresh $230 million loan for the long anticipated expansion and addition of modern modules to handle a wider range of crude oil types. TOR’s precious Residual Fluid Catalytic Cracking Unit (RFCC) was eventually financed by Samsung from the loan package and commissioned in November 2002. By this point, the refinery had racked up debts of over $300 million.
In 2003, the government instituted new taxes to enable the refinery pay off its debts and complete the planned expansion works.
Energy Analyst, Dramani Bukari, estimates that after these expensive technical works, plant utilisation (how much of a factory’s theoretical capacity can be practically used) at TOR ramped up to a high of 80% before beginning a disorganised descent until it hit a rock-bottom of 19% in 2009.
The Imperative of Expansion& the Debt Trap
Clearly, despite absorbing tens of millions of dollars in investment for technical transformation, TOR was still struggling with viability issues, increasing the urgency for a more radical expansion program to improve unit economies. Officials mooted the prospect of adding 100,000 barrels per day of refining capacity at the cost of ~$200 million.
Meanwhile, the debts continued to mount. Politicians continued to interfere in the running of the organisation, only ever appointing cronies and allies to all Board and senior management positions. Management policies grew even more arbitrary. Underfunded government subsidies ensured that the same year TOR processed the most crude, 2004, it also recorded the highest losses for the decade. Samsung, tired of all this drama, withdrew its interest as a prospective strategic partner.
The bumbling continued. Despite collecting $500 million in TOR-focused taxes by 2008, the government refused to invest any significant amount of money into the facility, even as it toured the globe looking for so-called “partners”. Unwilling to fully let go of a juicy gravy train, open and competitive privatisation was never really placed on the cards.
So, by 2010, the debt had ballooned to $1.4 billion. Confronted with the prospect of total shutdown and hostile creditor actions, the government started to make some payments. GCB, a state-controlled bank and a captive TOR creditor, was on the verge of being pulled down with TOR forcing the government to arrange a $316 million repayment.
That however did not stop the refinery from shutting down.
Facing a loss of public credibility, the government doubled down on efforts to address the fundamental issues.
By 2015, further payments had brought the debt down to a little under $750 million. Yet, frequent announcements of “strategic partnerships” and financing deals had yet to bear fruit. In one particularly striking example, the government announced a $900 million financing package in 2012 to tackle the crushing working capital constraints of the company.
Nothing of note happened.
God bless our hustle
Months later, in 2013, TOR was back to hustling for crude parcels around the world to keep the refinery in business.
The culture of hustling for crude and bits and pieces of working capital was fast becoming the defining hallmark of the TOR story. In 2011, a bizarre drama unfolded in which fake companies popped up from the undergrowth to claim ownership of crude oil delivered to TOR, forcing the intelligence services to step in.
Meanwhile, TOR’s throughput was now the lowest among peer refineries in the subregion.
In 2015, another effort was made to raise domestic funding to tackle the TOR debt and capacity juggernaut, but this time in concert with other energy sector challenges. The Energy Sector Levies Act (ESLA) was passed and, in 2017, a special purpose vehicle created to transform taxes into a more effective financing mechanism for clearing legacy debts and freeing energy sector corporations like TOR to embark on structural reform. Recall that by this time, TOR’s debt was around $750 million.
The ESLA SPV raised a total of $1.6 billion in the three years following setup. The government simply expanded its general spending and devoted nothing to the structural transformation of the refinery. It did however clear a significant portion of TOR’s legacy debt, which thus dropped to $460 million.
TOR revenues, on the other hand, tumbled from a peak of ~100 million in the last decade to less than $25 million in 2020. Accumulated losses over the period exceed a billion dollars.
Today, our sources tell us that TOR’s books have not been properly audited but provisional figures show a debt of nearly $450 million. The spate of shutdowns have intensified over the years leading to a state of near mothballing, with refining activities at a standstill for an unprecedented 26 months now. The organisation is on its fifth or so Chief Executive in five years. The center cannot seem to hold.
The Shadowy Duo: Decimal& Torentco
It is against this background that civil society activists and analysts received with dismay news of the submission to the Public Procurement Authority (PPA) of a proposal by the TOR management to lease the main assets of the refinery to a shadowy entity called Torentco Asset Management (“Torentco”) for six years. To fully appreciate the concerns of the analysts over this matter, it is important to recap the key issues.
It has long been recognised that TOR’s working capital, refurbishment, and debt management require capital in the range of between $500 million and $1 billion to begin to get a handle on the structural viability of the refinery. And that considerable capacity expansion is essential. In fact, the last CEO at TOR to have had anything remotely approaching a normal tenure insisted that $3.5 billion was required to start from a clean slate.
It is also widely accepted that TOR’s simple initial design as a hydroskimming plant requires a substantial overhaul to lower conversion losses and sustain plant utilisation over the medium term. For example, TOR’s current configuration is optimised for heavy distillates hence the criticality of the RFCC. Gasoil and atmospheric residue constitute more than 60% of its output. To produce more of the products most required on the domestic market such as petrol (Premium Motor Spirit) and diesel, a robust RFCC is vital in TOR’s current configuration.
TOR’s adverse managerial and operational history makes it difficult to raise money on good terms, obtain feedstock (raw crude) on reasonable credit, and to respond to market dynamics in a commercially competitive manner.
For nearly two years now, the government and TOR have been promising a major deal with the features needed to tackle these serious challenges. Things seemed to have come to a head when in another of the frequent managerial reshuffles TOR has become famous for, a new CEO took the helm last year and promptly announced a strategic partnership with a little known Kenyan entity called Decimal Capital to turn the refinery around.
Decimal was clearly introduced into the mix by another short-lived CEO of TOR, who was removed following a civil charge by the United States government for various alleged offences. He was subsequently criminally indicted under the Foreign Corrupt Practices Act. Many analysts believe that Decimal was still being teleguided by this former CEO.
This week marks one year since TOR’s management announced to the country that the Minister of Energy has approved a strategic partnership agreement between TOR and Decimal for the former to lease its infrastructure for the use of the latter in order to resume stalled refining operations. Then everything went quiet. At the time, Vitol was mentioned as the commodity financier. That is to say, Vitol, a large Swiss energy trader, was to provide the raw crude for TOR to refine on flexible financial terms. Nothing was heard of that either.
It is now apparent that there are factions in the highest echelons of the Ghanaian government, each with its own preferred crony arrangement. Because at the same time the nation was being told that TOR was moving forward with Decimal, another shadowy group calling itself Torentco was also engaged in brisk negotiations with TOR to lease the very same assets supposedly being transferred to Decimal. As is typical with these crony arrangements, no information was made public about any of these developments even though TOR is a 100% state-owned enterprise under an active tax-supported bailout.
After months of factional infighting, during which more shadowy groups, like a certain “Legacy Capital” based in Dubai and led by a certain Vladimir Palikhata (an occasional name in Russian whitecollar crime sagas) burst onto the scene, the Torentco group suddenly gained an upper hand.
On 13th June, 2023, TOR, presumably tired of dragging its feet, sent an updated proposal to lease certain of its vital assets to the Public Procurement Authority for ratification on a single-sourcing basis, the preferred procurement model when shady things are underfoot.
Torentco’s offer to TOR can be summed up as follows.
▪︎ TOR’s main productive assets will be leased to Torentco for 6 years. Excluded from the transaction are TOR’s creaky laboratory; TOR’s stake in the company (GPMS) that manages the moorings for marine vessels discharging cargo into TOR and the facilities of other bulk oil operators; TOR’s permits to use certain infrastructure it does not own but need for its work (“rights of way” and “tie-ins”); and the RFCC, a secondary plant at TOR that can extract valuable products from leftovers of products made in the primary plant, the CDU. Whilst these auxiliary facilities will not be leased out, and thus TOR will preserve the associated revenues of about $12 million, Torentco will nonetheless have access to them as and when necessary. ▪︎ Torentco is allowed to refine up to 8 million barrels of oil a year by paying $1 million every year as annual rent. ▪︎ There is also an “additional rent” amount of $1.067 million per month. The strategy behind this rent split is obscure, but Torentco argues that it is necessary to protect TOR’s lease revenue from creditors, who apparently have been trying to to attack TOR’s assets for monies owed. ▪︎ If Torentco refines more than 8 million barrels, it pays $0.5 for each extra barrel. ▪︎ So, if Torentco stretches the refinery to its full limit and refines 16.5 million barrels, it pays $17.2 million in rent. ▪︎ Torentco will invest $22 million to revamp the refinery. On top of that, it will assume responsibility for clearing provident fund arrears up to the tune of $2.5 million. To date, TOR has been struggling to pay its SSNIT and pension liabilities. ▪︎ Torentco will furthermore pay $800,000 into a reserve fund plus $0.4 to cover maintenance expenses for every barrel refined, while assuming responsibility for insurance and utility payments. At maximum production limit, Torentco’s maintenance commitments will cost about $7.4 million and insurance expenses will hit about $6 million per annum.
Beyond the core offer, Torentco has sought to bolster its proposal by name dropping certain partners. Vitol has been mentioned again as a potential bulk buyer of the refined output. Two local engineering and construction companies have been introduced as technical contractors for the refurbishment activities: ENTTP and Litwin Engineering. Rounding up the list of proposed consortium members is a commodity supplier called Pontus.
The PPA Board convened a meeting on 15th June, 2023, to deliberate on the updated proposal. Rather than comment substantially on the Torentco offer based on its Board’s due diligence findings, the PPA simply took a leaf from the book of the biblical Pontius Pilate when he sent the condemned Christ to Herod Antipas, King of Galilee. The PPA says that it took note of what it saw as “partnership” elements in the proposed transaction and thus chose to refer the matter to the Ministry of Finance, which under Act 1039 is responsible for scrutinising Public Private Partnerships.
But there was much more to say about the transaction beyond administrative formalities.
What is wrong with the Torentco Deal?
The Torentco deal is anchored on the fact that TOR today is idle for all the reasons and factors this essay has traversed. Given that TOR has been mismanaged into a state of near comatose and its own sole shareholder – the government of Ghana – has publicly announced that most of its frontline management are thieves, Torentco reckons that no serious investor will come in.
In these circumstances, Torentco’s mastermind, Michael Darko, ably assisted by his trusted sidekick, George Antwi, are completely convinced that TOR has nothing to lose if it carves out its productive assets and turn them over to a non-tainted operator to make a bit of money. Money that will be shared with TOR even as the latter continues to waffle around awaiting its salvation.
Despite the cosmetic plausibility, there is serious short-sightedness in such a proposal.
First, neither Mr. Darko nor Torentco ring any bells in the energy investment corridors at home and abroad. If the whole strategy hinges merely on hiving off TOR’s assets into a separate legal entity, then TOR might as well create such a subsidiary itself.
The issues of where working capital, a sustainable commodity supply contract, and credible offtaking arrangements will come from can only be properly addressed by a credible entity. TOR may not be one, but neither is Torentco.
None of the companies Torentco has mentioned, except Vitol, ring any bells either. And our sources in Vitol say no conclusive offer is on the table. ENTTP and Litwin are not the heavyweights needed to turn around a contraption as stuck in the swamps as TOR.
ENTTP’s Christopher Hesse-Tetteh has been mentioned in connection with some general logistics and construction works, but nothing remotely approaching the complexity and technical risk presented by TOR.
Litwin Engineering claims to be based in Switzerland but has zero footprint in the energy consulting and financing space except its own scanty self-attestations online.
The most worrying aspect of the Torentco Consortium’s credentials for this activity is its proposed source of crude oil feedstock. After all, it is inability to raise letters of credit to import crude to refine and pay off creditors that began TOR’s spiral of death. Only two entities fit the Pontus profile mentioned in Torentco’s proposals. Both are embroiled in shady oil trading situations, touching on potential fraud, sanctions busting and even terrorism. They are Pontus Trading of Dubai and Pontus Navigation of the Marshall islands.
The last issue goes to the heart of the credibility, transparency, and above-board concerns that civil society activists and analysts have about the whole leasing transaction. Actors lacking mainstream commercial credibility more easily fall prey to the wiles of the criminal and/or unethical underworld.
The bare economics are wobbly
Some have tried to position the proposed Torentco leasing strategy as nothing more than a variant of the tolling transactions TOR has had with the likes of Total, Woodfields and Vitol over the years. Such analysis is wrongheaded.
A leasing contract involves a handover of substantial control. A tolling contract does not. Once Torentco or another party gets hold of the refinery, it retains every right to secure its own commodity supplies, refine, sell, and pay back the supplier the cost of the crude oil, pocketing the full margin. There is nothing that says that such a company must limit itself to tolling deals with well known commodity suppliers like Total and sell to well known traders like Vitol. It can seek to maximise its margins by obtaining crude in grey markets to refine and sell back into such grey markets, especially in countries with porous supply chain security that cannot police even unsophisticated gold smugglers.
The sheer amount of money (crude calculations suggest between $250 million and $750 million in the TOR case depending on precise mix of refined products and plant utililisation) that can be made in today’s geopolitically fraught oil market if one can get shady oil to refine, sell and pay back over an extended credit period would be enough to corrupt multiple safeguarding institutions and overwhelm the country’s risk management capacity.
Per Current Proposal, there’s no scenario in which TOR comes up tops
But even if we were to take Torentco’s word for it that they intend to play within the traditional tight-margin refining space by simply cutting through TOR’s bureaucratic inertia and ringfencing the toxic legacy constraints such as debts and bad commercial reputation, the offer as it currently stand does not add up.
The actual guaranteed payments (direct and indirect) to TOR are equivalent to less than $1.5 per barrel, and thus lower than the tolling fee offers previous CEOs refused to accept. It is far lower than the $4.5 that those CEOs believe is the minimum sensible rate given the context.
In a situation where tightness in global oil supply, ahead of the electric car transition in future years, starts to provide support for $15 per barrel average refining margins in the next five years, a refinery operator would be in a good place to secure its commodity supply by whatever means. In such a world, the incentives are heavily skewed in Torentco’s favour.
The risks, on the other hand, weigh heavily against TOR. Its debts will be compounding, since it will not receive anything close to what it needs to service them whilst its productive assets remain encumbered for 6 years. Let us be clear. The kinds of money Torentco is mentioning – $22 million upfront investment, ~13 million in annual rent etc. – do not even begin to make a dent in TOR’s real financing needs. As recounted in the early sections of this essay, TOR requires a solution that yields many times more.
And, should the unthinkable happen, and the refinery find itself enmeshed in some sanctions-evading scandal because of shady suppliers or consortium members, and gets blacklisted, the burden of salvaging the tattered remains of its reputation will also fall on TOR, not Torentco.
There is no point in mincing words here. The Torentco deal as it stands now is not in TOR’s interest. It is absolutely not in Ghana’s interest. A whole load of transparency, open scrutiny, and reworking is required before it can even be taken into serious consideration.
Two days ago, the European Parliament came to an internal consensus on a draft version of the European Union (EU) Artificial Intelligence (AI) Act. Following this development, horse-trading will intensify among the European institutions to settle on a final legal text. This new phase of consensus building between the EU Parliament and the EU Council (with the EU Commission shuttling in-between) – the so-called trilogues – is an elaborate policymaking dance rivalled only by the elegant denseness of the Roman Curia’s Praedicate Evangelium.
The hope of the proponents of the EU AI Act is that it will become a global blueprint for how to realise the full benefits of AI without losing sight, and eventually guard, of its potential downside risks. The tendency of other parts of the world to follow EU thinking on how to regulate complex technical areas has led to a term: “Brussels Effect“.
No context has experienced the Brussels Effect in so concentrated a manner as internet privacy and data protection. The EU’s General Data Protection Regulation (GDPR) is widely acknowledged to have shaped the compliance culture of companies and government agencies far beyond Europe.
The question on everyone’s mind then is, would the EU AI Act do the same?
Reports that Parliamentarians in Ghana might initiate legislation on AI, following extensive stakeholder engagement in various African countries funded by Germany’s GIZ, outlines one obvious path through which the EU’s influence in such matters spread: donor relations and international development aid.
My more radical friends in the Civil Society movement promptly dismiss such channels as just another neocolonialist ruse. The more charitable ones reference dated theories of “normative imperialism“.
A more nuanced view of the Brussels Effect however focuses rather on its utility, the practical problems it solves for those societies around the world choosing to delegate regulatory thinking and standards setting to Europe. As pragmatists like to say, there is no genius in reinventing the wheel. If Europe has the will and wherewithal to do the heavy-lifting of tackling such complex, and protean, novel challenges such as how to tame AI for the rest of the planet, why protest?
In a preprint short essay, I explore this theme in some depth.
As is now widely acknowledged in the literature, the EU’s success in exporting and diffusing GDPR was a special case born out of exceptional circumstances, and not the sign of a general, not to talk of universal, trend.
GDPR capitalised on broad longstanding conventional wisdom about the desirability of more privacy and better data protection to build its momentum. The benefits of lax and loose privacy and data protection policies have rarely been collated into a definite counter-proposal against which GDPR had to contend. There is limited contention about the importance of good privacy and data protection rules and what they look like. The EU only needed to give heft to projects and processes scattered in bits and pieces around the world, and supported by a fairly expansive bedrock of popular and elite sentiments.
My argument, in the essay referenced above, is that emerging technologies with potentially vast benefits and a profoundly uncertain trajectory present unsurmountable barriers to the Brussels Effect.
I predict that not only will countries and companies hesitate in taking strong cues from the EU regarding how to design and respond to compliance mechanisms, but that we will also see distinct efforts to dilute the EU’s moral influence in the AI ethics & regulation domain.
Global approaches will splinter along various axes through, as India is doing, calls for genuinely multilateralist solutions, which will typically slow down any serious action as the technology races forward; and, as many others are doing, resistance movements against the EU’s signature approach of use-case classifications and proscriptions.
The Parliament of Ghana is reviewing an onlending agreement between the government of Ghana and a new Ghanaian state-owned development bank, DBG.
This agreement is a requirement for the European Investment Bank (EIB) to start releasing tranches of funds from a €170 million commitment to the DBG.
However, the decision to fund the DBG by key multilateral development banks such as the World Bank, Africa Development Bank (AfDB) and the European Investment Bank (EIB) was taken in 2019 when Ghana’s finances still had a shine. The kind of shine that billions of dollars of Eurobonds can confer.
After dragging its feet since 2020 when the EIB agreement was signed, the government of Ghana has finally dragged itself to Parliament to pursue ratification of the on-lending agreement between it (as the primary borrower) and the startup DBG (as the entity to disburse the funds).
But the world has changed enormously since 2019.
At a time when the country’s three existing development banks – Agricultural Development Bank, EXIM bank, and National Investment Bank – are widely considered to be poorly governed and heavily undercapitalised, and the finances of the country itself have crashed, the whole DBG wholesale on-lending model feels out of touch and out of place.
There are many challenges with the proposed DBG’s model that deserve very careful unpacking and in due course that will happen. But even without getting into the weeds, the very fact of expanding public debt in the name of development banking in a country struggling to restructure existing debt leaves a bad taste in the mouth.
We expect that Parliament – or at least the Opposition half of it, seeing as the government faction never performs any oversight – will subject this whole DBG program to serious scrutiny and insist on a proper national debate about the propriety of doing this at this specific time.
Bearing in mind that the World Bank is also supposed to release $250 million to the DBG at the same time as Ghana is pursuing concessional financing from the same quarters just to balance its budget. In total, the government intends to borrow nearly $800 million to execute the DBG strategy.
So far, the governance safeguards that were demanded by the multilateral development banks are merely assurances on paper. Some of the stipulations will be easy to follow. But those ones are the least important. For example, money from the EIB to the DBG cannot be on-lent to alcoholic companies, quarries or any mining projects. Compliance in such circumstances is easily verifiable. Rules against nepotism, cronyism and disbursement to favourites are far harder to enforce. Yet, this is where state-owned banks in Ghana – development-focused or standard-commercial – typically falters. Two Ghanaian development banks collapsed in the 1990s after senior management facilitated cheque fraud by a corporate client to the tune of nearly 130 billion Cedis (old currency series). Less than 30 billion Cedis were eventually recovered.
Already, there are worrying signs that DBG operates according to the same opaque principles that all state owned enterprises (SOEs) in Ghana do. It publishes little about its strategy, advertises available roles and consulting gigs half-heartedly, and gives very limited account of how the tens of millions of GHS it says it has disbursed to SMEs were actually disbursed. Just another opaque Ghanaian SOE.
Whilst the qualifications of its initial bosses cannot be questioned, there are no indicators as yet of a corporate governance culture cut above the rest of the SOE landscape.
We hope that the EIB, AfDB and World Bank will not continue to enable public debt accumulation by Ghana with limited checks and balances and then when the country hits the rocks and is struggling to pay its creditors, everyone points the finger at someone else.
The nomination of Ajay Banga, the former Chairman of global payments giant, Mastercard, as the new President of the World Bank by the organisation’s largest shareholder, the United States, has coincided with a big debate about how to reform the Bank to strengthen its delivery as the world’s number one development champion.
The Bank’s own “evolution roadmap” sketches the contours of a new vision to tackle the urgent issues of persistent poverty, skewed prosperity & the globalisation of the planet’s biggest threats.
A major prospect outlined in the document is the injection of “additional financing” into the Bank through: “further optimizing the balance sheet, increasing the IBRD equity through various options, and increasing mechanisms for concessional funds for WBG activities to address GPGs.”
The IBRD, cited in the quote from the roadmap above, and the IDA are the two main, legally separate, public-sector entities within the World Bank Group. Broadly speaking, the IBRD caters to the higher borrowing needs of the middle income and more credit-worthy low-income countries, which despite being wealthier than the average Global South country still host the majority of the world’s poor.
To do this, the IBRD borrows from the private markets on the back of its solid credit rating (AAA) to get funds at reasonable rates. The IDA, on the other hand, uses money it gets from rich governments, as well as the capital markets, to lend primarily to the poorest countries in the world, usually in the form of soft (lower-interest) loans complemented with a generous padding of grants.
In recent months, boosting the capital of the World Bank for increased lending has gotten all the attention. All the 14 largest Multilateral Development Banks (MDBs) in the world – the World Bank plus others such as the African Development Bank (AfDB), Asian Development Bank (ADB) and the European Investment Bank (EIB) –provide less than $170 billion annually in development financing. A little over a third of this money comes from the World Bank group. Many feel that this is far from enough.
To put the numbers into perspective, experts estimate that between now and 2025, the world ought to be spending $2.6 trillion per year, and $4.5 trillion from 2026 to 2030, just on the Net-Zero climate transition effort alone (i.e. getting the world to zero net carbon emissions). Currently, the world is on course to spend less than a trillion US dollars a year leaving a gap of more than $1.7 trillion per year between now and 2025. The private sector already outspends the MDBs by nearly 50% in sustainable development financing.
At any rate, even the modest amount spent by the MDBs is heavily dependent on borrowing in the market. Roughly 95% to 98% of the monies invested in the MDBs by rich governments operate more like guarantees for borrowing done in the world’s bond markets rather than actual cash.
On the premise that more capital injections will increase lending capacity, the MDBs regularly undertake “general capital increases”. In 2011, for instance, the principal institutions boosted their spending power between 31% (World Bank’s IBRD) and 200% (AfDB), mostly through raising bonds. In 2018, the World Bank secured another significant capital increase of $7.5 billion in cash and $52.6 billion in guarantees from the major shareholders for the IBRD. On the back of the capital increase, the IBRD and IDA are able to disburse about $50 billion jointly these days (60% of which went to Sub-Saharan Africa) compared with $30.5 billion in 2017, before the capital increase.
The question however is whether capital increases are the most critical factor in shaping the capacity of the World Bank to respond to the economic development needs of its poorest members.
The first point to note in answering that question is that historically general capital increases have not been the main driver of an increase in the quality or quantity of development lending.
For example, the five-year average growth in IBRD commitments before the 1988 capital increase was 61%. After a near 16% jump in the year after the capital increase, growth for the subsequent 5 years averaged just 3.1% over the entire period. In a similar vein, average IBRD commitments grew by a cumulative 250% in the 4 years before the 2011 general capital increase and actually saw a drop of 12% in the four years thereafter.
A similar picture can be seen before and after the last capital increase in 2018. From a pre-capital increase high of $64 billion in 2016, commitments have grown to just a little over $70 billion today.
The second vital point is that disbursements (actual cash flowing to borrowing countries) have thus remained stagnant at ~71% between 2017 and 2022.
The combined effect of these two trends is that actual disbursements between 2016, before the capital increase, and 2022 has actually stayed flat: from $49 billion to $50 billion. If an increase in guarantees and cash of ~$60 billion did not transform IBRD lending from 2018 onwards then plans to loosen capital adequacy rules by the World Bank management, which will generate just about $4 billion extra, are unlikely to make a difference.
The technocratic consensus for the World Bank to implement another capital increase therefore ignores a serious challenge in getting funds to drive development in poor countries: increasing quality disbursements.
This author is part of a network of civil society organisations (CSOs) that frequently analyse government projects for their integrity and ESG compliance. Two decades ago, we were highly critical of the Bank’s role in a development aid system that, in our view, often permitted waste and corruption. After participating in the Bank’s Africa strategy review in 2011, CSO networks like ours began to see how domestic factors often overwhelm the bank’s systems and seriously slow disbursements.
In several African countries, the Bank’s exacting standards, including its tendency to blacklist noncompliant private contractors and alert other development banks to do the same, have led to a tendency of government officials to drag their feet and, where possible, even look for alternative sources of finance, even if more expensive.
Recently, researchers analysed more than 400000 contracts awarded under MDB projects between 2000 and 2019 to the tune of over $850 billion in nearly a 180 countries. World Bank projects scored much higher than regional MDBs for their use of controls to avoid corruption and collusion.
Our own experience in Ghana and elsewhere in Africa testifies to this. Attempts to access documentation on a recent $750 million facility from Afreximbank to Ghana have been blocked at all levels by both the Finance Ministry and the Parliament for six months now and counting. Such a thing would be unthinkable for a World Bank facility.
The high transparency requirements, strict procurement rules, and elaborate monitoring and evaluation yardsticks grate against unresponsive bureaucratic and governance cultures bolstered by the recent expansion of African sovereign access to the “ask no questions” private bond markets.
In Ghana, recent reviews of major World Bank public sector reform projects expose strong barriers in transcending this disbursement challenge. What is more, little has changed over the many decades of World Bank lending to the country suggesting a metaphor of state dyslexia.
A much more interesting case study to drive home the point comes, however, from South Africa. Experts frequently argue that the low interest rates charged on IBRD loans make the World Bank a potentially powerful mediator between African countries with massive capital needs, like South Africa, and the open markets. Yet, the disbursement rate for the entire South African IBRD portfolio is a paltry 16.89%.
This is despite very strong alignment between the IBRD’s strategy and South Africa’s most pressing infrastructure needs. The country’s power crisis has been described by its President as a “state of disaster”. The power shortfall was long anticipated and problems unlocking private capital were exactly of the sort designed to be fixed by the IBRD’s financial intermediation.
So, a project to lend $3.75 billion to the main state-owned energy utility, Eskom, for a power plant at Medupi was put on the table in 2009. After nearly two years of preparation, the project launched. The first year and half went well and nearly half of the committed funds were disbursed. Then the ill-fated second phase of the Zuma presidency started to bear down on government operations. Medupi became trapped in a loop of project management chaos and confusion. Despite five restructurings, full disbursement could not be achieved.
More tellingly, it is the green/climate financing component of the project, with its greater need for management sophistication, that suffered the most. Nearly 13 years after the project was initially mulled, it had to wrap up with nearly $600 million undisbursed, of which $408 million were for clean energy interventions, including a critical grid-scale energy storage solution. Those funds have been rolled over into a new scheme but reports indicate that problems persist. $100 million slated for capacity reforms had to be cancelled outright.
Despite taking more than double the estimated time to complete, project challenges were never fully resolved. The Medupi plant’s throughput (or “availability factor”) hovers below 58% compared to the international standard of 92% for equivalent installations. Not surprisingly, as project risks escalated, the Bank’s risk aversion followed suit, hobbling delivery of ancillary projects.
In short, more cash for the World Bank through yet another general capital increase would do little to address the serious blocks at country level preventing the effective absorption of already committed funds. What is urgently needed is a frank conversation about policy integrity followed by a concerted effort to unify the standards regime for accessing money across different sources so that countries are more incentivised to comply with strong rules.
Whilst the World Bank touts a recent improvement in ratings of its projects, its independent evaluation group notes that Completion & Learning Reviews, the gold-standard monitoring instruments, have fallen to a record low. In fact, in 2021, only two were conducted, versus 99 in 2011.
Through this limited evaluation aperture, historically challenged African regions continue to record very low performance: only 49% of World Bank projects were rated as moderately satisfactory or higher.
Tragic though it may seem, the ongoing shutout of several African countries from private bond markets forcing a reversion to the MDBs also offers a narrow but compelling opportunity to think through and agree on a unified standards regime, especially because private lenders are better attuned to the need for fiscal discipline at country level now more than ever.
Given the MDB’s heavy reliance on private lenders for their resources, the fact that the latter have been competing for the same loan opportunities in the same attractive developing countries, and in some ways driving down standards, makes harmonisation to close the ESG arbitrage gap in development finance markets even more imperative. Especially now that debt relief campaigners are accusing private lenders of reckless lending and insisting on punitive debt cancellations; it is amply clear that relying solely on risk premia in debt pricing in private markets won’t cut it. Capacity building to boost project performance standards at country level is critical.
It is good to highlight the urgent need for more development capital overall but such calls ring hollow when they don’t also address all the cash being left on the table, because of the Disbursement Crisis, or wasted because of weak absorption capacity and a compromised ability to manage project integrity in some of the world’s neediest countries.
This author’s personal acquaintance with Ajay Banga’s commitment to strong execution over rhetoric suggests that he is well equipped to tackle this challenge. It is unclear though whether he has the risk appetite to go against the technocratic consensus on capital increases.