Zambian President Michael Sata is seeking to assure foreign companies that investments in the country's telecom sector are secure, following the government's reversal of the sale of national carrier Zamtel to Libya's Lap Green Networks.
The Zambian government on Tuesday officially took back the share of Zamtel it had sold to Lap Green and dissolved the company's board of directors. Zambia is the first African country to reverse the sale of a telecom company to a foreign investor. The move comes in the wake of allegations of fraud and irregularities in the sale of Zamtel, the country's only total solution telecom service provider.
Zamtel was a government-owned telecom company until Lap Green bought a majority share in the company in June 2010 at a cost of $394 million. The stake was sold by the previous Zambian government after it allegedly failed to recapitalize the company. Sata assumed office in September last year after a general election campaign based in part on taking back Zamtel shares from Lap Green.
Last week, the Zambian government froze all bank accounts belonging to Zamtel in a bid to prevent Lap Green management from expropriating funds. However, the Zambian government's action has widely been criticized and has seemingly weakened foreign investors' confidence in the country's telecom sector.
Private Sector Development Association (PSDA) Chairman Yusuf Dodia said the freezing of the Zamtel accounts without a court order may imply, especially to the investor community, that the Zambian government interferes with the running of businesses in the country. The PSDA is a local association chartered to protect the interests of private investments in the country.
"The Zambian government should not handle the Zamtel saga in a manner that would erode investor confidence but instead base its decisions within the confines of the rules and regulations," Dodia told reporters last week.
George Kunda, who was vice president at time Zamtel was sold, has also warned that by reversing the sale of Zamtel, "the country risks losing investor confidence." Kunda said no foreign operator would be willing to invest in Zambia because the security of the company's investment would not be guaranteed.
But following sustained criticism and international attention, Sata is now seeking to assure foreign investors in the telecom sector that, Zambia remains a viable investment destination and that the country is peaceful, stable and committed to the rule of law.
Sata said the sale of Zamtel has been reversed because Lap Green failed to meet three key conditions for the sale, relating to the time it had been operating in Zambia, the number of registered subscribers it had, and a minimum shareholder equity or market capitalization level.
Lap Green was allowed to buy Zamtel despite failing to meet conditions set by the Zambia Development Agency (ZDA), including a provision that the company buying Zamtel should have a minimum of five years of licensed operation in the telecom sector. Lap Green did not also have three million subscribers and a minimum of $250 million in equity available for private entities at the time of acquiring Zamtel as demanded by ZDA.
The problems surrounding the sale of Zamtel underlines the difficulties that African governments face in privatizing incumbent operators. Generally, corruption and lack of transparence among senior government officials has been at the root of the problems surrounding the privatization of African operators.
Sata claims the current government has both the will and capacity to meaningfully recapitalize Zamtel. He has also said that the Zambian government now wants to sell a majority of the shares in the company to Zambians.