By Libya Herald reporters.
Tripoli, 21 March 2012:
In the wake of its nationalisation of the Libyan-owned telephone company Zamtel, Zambia has seen its economic outlook downgraded from stable . . .[restrict]to negative.
Credit Rating Agency Fitch has kept the country’s B+ rating but made it clear that this is endangered as a result of the new government’s interference in past privatisations, which include the 2007 sale of a 46 percent stake in the Zambia National Commercial Bank, Zanaco, to Rabobank of the Netherlands.
“The revision of Zambia’s Outlook to negative reflects the agency’s concerns about some of the government’s recent actions and announcements”, Carmen Altenkirch, Fitch’s director of sovereign ratings which bring into question the direction of economic policy.”
“The recent decision to reverse a privatisation deal, without as yet compensating the investing parties could undermine property rights, while planned reforms of the mining and banking sectors could risk unintended consequences in terms of their potential impact on investment, and consequently on the growth outlook and macro-economic stability,” she added.
The Libyan Investment Authority is now suing the Zambia government for $480 million following the January re-nationalisation of the Zamtel telephone network, in which the LIA acquired a 75 percent stake in 2010.
Following his election victory last September, the new Zambian president Michael Sata, who had campaigned on an anti-corruption ticket, alleged that the Zamtel sale, to LIA subsidiary, Lap Green Networks, for $257 million had been fraudulent and involved the bribing of senior Zambian government officials. Sata appointed a commission of enquiry which in January confirmed these allegations. The former minister of Communications and Transport, Dorah Siliya, who oversaw the Zamtel sale, has since been arrested.
The LIA has reacted angrily to the re-nationalisation, arguing that the deal was above board. It has filed a suit against the Zambian government in the High Court in Lusaka, the country’s capital, demanding the seizure be declared unconstitutional and be reversed.
Lap Green’s chairman Wafik Al-Shater said : “We are compelled to take this course of action as dictated by the procedure set out in the Zambian law. Under Lap Green Network’s management, we significantly increased the company’s market share, leading to a 50 percent increase in revenue. The growth and prosperity that Zamtel saw under our management was unprecedented.”
He added that the seizure was not only unconstitutional but was to the detriment of Zamtel customers. Under Lap Green’s management the growth and prosperity of the company had been unprecedented, with a 50 percent increase in revenues. In addition to the $480 million for its shares, Lap Green is seeking compensation for the “substantial losses” it has incurred since the Zambian government took back the assets.
Lap Green has other African telco investments in Uganda, Rwanda, Niger, Ivory Coast, Zambia, South Sudan, Sierra Leone and Togo
At the time of the Lap Green purchase, Zamtel was known as being one of the least efficient but most expensive telcos in Africa. No longer a monopoly, Zamtel’s fixed line and internet customer base was being eroded by its two foreign mobile ‘phone competitors, Zain and MTN. While Zamtel’s had only 100,000 mobile subscribers, Zain had around three million and MTN one million.
Zemtel had also run up debts of over $75 million and needed around $200 million in new capital. The then-government of President Rupiah Banda decided to seek a new investor to turn around the failing service, while it kept a 25 percent stake in the company.
The Zambian Development Agency was appointed to handle the privatisation. From eight potential buyers, it shortlisted three investors including Lap Green. To sweeten the deal, the government handed over the country’s only fibre optic network to Zamtel, meaning the company would be able to garner revenue streams from is rivals. At the same time however, Zamtel’s monopoly on international calls was broken when Zain and MTN were awarded their own international gateways.
Lap Green maintains that under its ownership, Zamtel had moved to a state of “near solvency” to become a national success story. The subscriber base had been grown by over 600 percent in just 18 months and 1,700 new jobs has been created.
Zambian Attorney General Mumba Malila said in January tht the Zambian government was still working out how Lap Green will be compensated for its shares and the investment that the company had made in Zamtel. No proposal has since been forthcoming.