Ethiopian Telecom Corporation or Tele-corruporation?

Ethiopian Telecom Corporation or Tele-corruporation?

By Prof essor Alemayehu G. Mariam

“Ethiopian Telecommunications Corporation” (ETC)

In August 1998, the World Bank (WB) issued a corruption report on Ethiopia and summarized:

In the Government’s view, the f ollowing are the major determinants of corruption: a poorly f unctioning legal

and judicial system inconsistent with the 1994 Constitution; an overregulated bureaucracy, emphasising

regulation rather than service delivery; a low-paid civil service; a new yet rudimentary government, based on

a f ederal structure; and weak budgetary and f inancial control, with an outdated procurement structure, and

poorly trained f inancial staf f …

That WB report made a number of recommendations to combat corruption including, “strengthening links

with civil society and the private sector to identif y critical areas relating to corruption”, “elimination of

excessive regulation”, “promotion of competitive market conditions and greater transparency”, and

f acilitation of “dialogue among Parliament, Civil Service, Civil Society, the Private Sector, the Media, the

government, the Chamber of Commerce, other members of the business community, and civil society on

implementing the anti-corruption program and developing complementary activities.”

By 2013, the “overregulated bureaucracy” of 1998 had become even more over-regulated. Government

service delivery remains abysmally poor. The “new rudimentary government” had grown tentacles that

crushed and pulverized everything in its reach. The “procurement structure” across agencies had been

transf ormed into a bottomless vortex of corruption, f raud, waste and abuse of public f unds, including

f oreign aid and international loans. The “poorly f unctioning legal and judicial system” evolved to become an

exquisite kangaroo court system which permits arrest and incarceration of suspects without suf f icient

evidence. (Ethiopia is the only country in the world where the prosecution can arrest and jail suspects

indef initely while repeatedly asking leave of court to gather evidence of guilt on the suspects!) The “poorly

trained staf f ” evolved into a sophisticated band of of f icial thieves and swindlers. The regime that cemented

itself in power in Ethiopia since 1998 is so corrupt that its venality is arguably exceeded only by the regime

of General Sani Abacha of Nigeria in the mid-1990s who, alongside his f amily members, associates, cronies

and supporters, looted Nigeria’s cof f ers to the tune of over USD$16 billion.

The two most ef f ective anti-corruption institutions recommended in the 1998 WB report — the independent

media and civil society organizations — have been totally decimated. In its January 2013 report, Human

Rights Watch concluded, “The ruling party has passed a host of laws attacking the media and civil society,

including the Charities and Societies Proclamation that has made independent human rights work in the

country almost impossible. The state has f rozen the assets of the last two remaining groups – the leading

women’s rights organization, the Ethiopian Women Lawyers Association EWLA) – which has provided f ree

legal aid to over 17,000 women – and the Human Rights Council (HRCO).” Ethiopia’s independent media has

been annihilated with dozens of journalists in jail or in exile. According to Freedom House, “Ethiopia [in

2012] is currently the second-leading jailer of journalists in Af rica, af ter Eritrea.”

Since the WB’s 1998 study, the cancer of corruption has metastasized throughout the Ethiopian body

politic like cancer. In 2011, Global Financial Integrity (GFI), the renowned organization that reports on “illicit

f inancial f lows” (illegal capital f light, mispricing, bulk cash movements, hawala transactions, smuggling, etc.)

out of developing countries, reported: “Ethiopia lost $11.7 billion to outf lows of ill-gotten gains between

2000 and 2009… The people of Ethiopia are being bled dry. No matter how hard they try to fight their way out

of absolute destitution and poverty, they will be swimming upstream against the current of illicit capital

leakage.” The economy heaves under excessive regulation and taxation. The regime has a stranglehold on

power and its supporters and cronies have sucked the economy dry. The regime operates in total secrecy

and with no transparency and accountability f or its of f icial activities.

In June 2012, the World Bank issued its comprehensive 448-page “Diagnosing Corruption in Ethiopia”. It

was a study of extraordinary depth and scale. It was a “clinical” diagnosis of cancerous corruption that has

has metastasized throughout the country’s “health, education, rural water supply, construction,

telecommunications, justice and land sectors”.

For crying out loud…

Over the past several months, I have commented on the 2012 WB’s corruption f indings in

the land and education sectors in Ethiopia. Here I comment on corruption in the telecommunications sector.

According to the WB, corruption in the Ethiopian telecommunication sector specifically “includes bribery,

extortion, f raud, deception, collusion, cartels, abuse of power, embezzlement, trading in inf luence, money

laundering, and similar unlawf ul actions.” Billions of dollars have been lost in the telecommunications sector

f rom outright thef t, f raud, waste, abuse, prof iteering, nepotism, kickbacks, sweetheart deals, shady

dealings, malf easance, mismanagement and mindboggling incompetence. There is little accountability and

transparency in the “Ethiopian Telecommunications Corporation”; and it has become the home and

playground of the most avaricious corruptoids in Ethiopia.

The 2012 WB report attributes corruption in the ETC to a number of f actors including an “environment

where there is a combination of exceptionally high investment costs and poor service delivery”, “lack of

accountability f or the sole service provider”, “anticompetitive practices in the market” and “serious

mismanagement within the telecommunications sector.”

In its assessment of corruption in the telecommunications sector, the WB begins its analysis with the

f ollowing ironic observation:

Ethiopia boasts the oldest functioning telephone system in Africa. In 1894, just 17 years af ter the invention of

the telephone, work began on the provision of telephone and telegram communication between Addis

Ababa and Harar, a distance of some 477 kilometers. [The regime]… invested some US$14 billion in

infrastructure development between 1996 and 2006” [amounting to] about 10 percent of GDP in the sector,

an unusually high level of investment by international standards…. [The investments] are currently directed

into f ixed, wireless and mobile network inf rastructure, including third-generation (3G) mobile technology as

well as a national f iber-optic backbone…”

Despite the country’s exceptionally heavy recent investment in its telecoms infrastructure, it has the second

lowest telephone penetration rate in Africa. It once led the regional f ield in the laying of f iber-optic cable, yet

suf f ers f rom severe bandwidth and reliability problems. And it boasted the first privately owned public

telecoms service in Africa, yet is now the only nation on the continent still permitting a state-owned company to

maintain a monopoly on all telecoms services. Amid its low service delivery, an apparent lack of

accountability, and multiple court cases, some aspects of the sector are perceived by both domestic and

international observers to be deeply affected by corruption.

Ethiopia established its telecommunications inf rastructure the same year Europe laid its plan f or the

“Scramble f or Af rica”. In 1894, the Berlin Conf erence was held to enable European nations to chop up Af rica

and colonize it without the need f or imperialistic wars among themselves. By 1904, telegraph lines ran into

the capital Addis Ababa f rom Harar in the east, Tigray in the north and Jimma in the south.

According to Freedom House, in 2011, mobile, internet, and f ixed line telecommunications in Ethiopia is the

second lowest in all of Af rica. According to the International Telecommunication Union (ITU), “in 2011, there were only 829,000 f ixed telephone lines in actual operation (a decrease f rom 908,000 lines in 2010), serving a population of 83 million f or a penetration rate of less than 1 percent.” Internet penetration in Ethiopia, the second most populous country in Af rica with a population approaching 90 million in 2013, is less than 1 percent (0.7%), keeping that country at the tail end of all Af rican countries; and f or that matter all countries in the world. The bar graph displayed below (obtained f rom the WB report) shows that in 2009, Kenya, Sudan, Somalia, Djbouti and Eritrea were ahead of Ethiopia in the percentage of internet users, and

f or all practical purposes in mobile and f ixed line telecommunication services as well.

For crying out loud, how is possible f or a country that has had telecommunications services f or 119 years

and “boasted having the oldest f unctioning telephone system in Af rica” to have the lowest

telecommunications penetration rate in Af rica today?

In the name of the Almighty, how is that possible f or a country that has invested “US$14 billion in

inf rastructure development between 1996 and 2006” and made “exceptionally heavy recent investment in its

telecoms inf rastructure” to have the lowest telecommunications penetration rate in Af rica?

How is that possible f or a country whose economy has allegedly been growing at galloping double-digit

annual rates f or the past decade and whose population is pushing 90 million to trail at the tail end of the

most vital element of technology in the modern world?

All things being relative, and in all earnestness, was Ethiopia better off in telecommunications in the Nineteenth

Century than it is in the 21st?

What a low down dirty shame!!!

Anatomy of tele-corruption in Ethiopia

Tele-corruption in Ethiopia occurs at the structural level. The WB report reveals that the systemic cause of

corruption is attributable to a “combination of monopolistic service provision and apparently weak

accountability mechanisms.” The ETC is a state-owned monopoly and “the sole provider of

telecommunications services in Ethiopia (including f ixed-line, mobile, Internet, and data communications).”

Telecommunications “equipment is provided and installed by international suppliers.” Anyone who seeks to

“operate any telecommunications service” must obtain a “license” f rom the ETC. Some “20 entities,

including Ethiopian Airlines and the World Bank, have been granted special authorizations to operate

independent communication links.”

Corruption in the telecommunications sector in Ethiopia manif ests itself in a number of ways. ETC charges

excessively “high rates f or its services. International bandwidth costs in Ethiopia were approximately double

those in neighboring Kenya.” The regime was hell-bent on “seeking to curtail and control communication

services” f ollowing the disputed 2005 elections and “banned telephony (telecommunication services f or the

purpose of electronic transmission of voice, f ax, or data, between distant parties) and created a new

organization, the Network Operation Centre, to control internet service.” The ETC’s billing system has been

a total disaster. According to the WB report, “In 2006, the system f ailed completely, resulting in a revenue

loss of US$6.3 million. The entire customer database was lost and there was no backup, even though the

equipment for such a backup had reportedly been procured.” The procurement system (the process involving

in advanced planning, scheduling, and purchasing of goods and services with the aim of cost savings, more

ef f icient business operation, etc.), is completely corrupted particularly in light of “Ethiopia’s increasingly

close political relationship with China.” In sum, the ETC is the most sacred cash cow f or the regime

members, their cronies and f at cat associates in the business sector. The WB report notes that “Although

the ETC has been unable to keep pace with demand, there are no f irm plans to allow another operator to

enter the market.” So, Ethiopia, the f irst to have telecommunications in all of Af rica in 1894 today f inds

itself at the tail end of the telecommunications revolution in all of Af rica!

Rigged contracts: ground zero for corruption in the telecommunications sector

Ground zero f or corruption in the Ethiopian telecommunications sector is the procurement process.

According to the WB report, in 2006 the ruling regime entered into a “highly unusual” “Vendor Financing and

Supply Agreement f or f inancing, supply, and installation of telecoms equipment up to a value of US$1.5

billion.” (The expected expenditure on improvements to the telecommunications sector by 2012 was USD$4

billion.) Among the “unusual” characteristics of the “high value” Vendor Agreement include, “granting one

supplier the right to supply all telecoms equipment to the ETC over a three-year period.” The regime agreed

“f or a period of three years, to place all telecoms contracts with the supplier. Specif ically, the agreement

required the ETC to place nine prespecif ied equipment packages with the supplier.” According to the WB

report, there was “no commercial justif ication f or the award of such a large contract to one supplier”. The

Agreement was signed without “competitive tender taking place” and there was no “ef f ective contractual

mechanism f or price protection and technical compliance.” The Agreement “as signed provided f or a 13-year

loan period, with the f irst three years being interest-f ree.”

The rigging of telecommunications procurement is mindboggling. What is amazing is not only the f act that

there was no competitive tender f or either f inancing or equipment supply or even that the whole

telecommunications kit and caboodle was handed over to one vendor; rather it is the cavalier, disdainf ul

arrogance of unaccountability of the regime in making the deals. The regime dealt with the sole source

vendor as though they were betting their own money at a crap table in a Las Vegas casino. According to the

WB report:

The procurement process f or the vendor f inance contract was initiated by the ETC through a request to

several suppliers. The equipment to be supplied under the proposed f inancing was not specified in detail at

that time, and the process was kept informal for the most part… The ETC’s financial requirements were not

provided in detail to those suppliers (other than possibly the winning supplier) that had been approached to

consider providing such f inancing. There is no evidence of a formal tender procedure for the finance

package. The supplier selected by the ETC to supply the finance package was the only company that offered a

financing package that suited the ETC’s purposes. The equipment supply element of the vendor financing

contract was not put out to competitive tender. This absence of competitive tender means that there is a

considerable risk of overpricing and unf avorable contract terms f or the ETC…

The ETC committed to purchase all telecoms equipment over a three-year period from one supplier. Such a

wide-ranging commitment without competitive tender is highly unusual. There does not appear to

be any commercial necessity to place the whole US$1.5 billion contract with one supplier. The nine

dif f erent equipment packages being sought (f or example, mobile, customer data center, and Internet) could

have been placed with dif f erent suppliers and still have resulted in a compatible and ef f icient network. This

sole sourcing commitment means that there is a considerable risk of overpricing and unfavorable

contract terms for the ETC in relation to each supply contract.

The details of the rigged Agreement are madding. The “contract was awarded bef ore agreement on either

the specif ication or price—and without a suf f icient contractual price protection mechanism.” The “contract

was not in accordance with the ETC’s procurement procedure. Procurement procedures are bypassed

allowing sole-source purchasing instead of competitive tendering. In some cases, the ETC purchases new

equipment when it already has the necessary equipment in the warehouse. The ETC’s procurement

procedures allow f or the debarment of poorly perf orming suppliers, but the ETC does not appear to

exercise this right. Some prequalif ications and tenders allow too much room f or subjective assessment,

potentially causing some suppliers to be inappropriately eliminated f rom the tender list.”

There were no ascertainable “procedures f or ensuring technical quality and competitive pricing.” There was

no way of determining “whether prices f ar exceed reasonable industry prices.” The supplier had “no

incentive to provide a competitive price.” Implementation of the Agreement remained shrouded in a veil of

total secrecy.

For obvious reasons, the WB report could not come out and say it, but the truth of the matter is that

somebody or somebodies had a BIG payday when the Vendor Agreement was signed! Somebody or

somebodies got a BIG cut worth millions of dollars in kickbacks. The USD$1.5 billion Vendor Agreement was

rigged by rip-of f artists who never thought they would be discovered or someday prosecuted.

According to the WP report in July 2007, the “ETC allegedly dismissed 16 high-level employees f or

corruption as a result of an 2007 audit report that suggested irregularities in purchases f rom international

suppliers. The contracts in question allegedly were worth US$54 million.” In January 2008, the so-called

anti-corruption agency “brought charges” against a “f ormer ETC CEO and 26 f ormer ETC executives f or

allegedly procuring low- quality equipment f rom companies that were supposed to be rejected on the basis

of procurement regulations.” The contracts in question were worth US$154 million. In August 2008, the socalled

anti-corruption agency “arrested a senior ETC manager af ter receiving an audio recording and

transcript f rom an anonymous source in which the manager is allegedly recorded soliciting a bribe f rom an

international supplier.” Assuming that the money reportedly lost to corruption and low quality equipment is

not lowballed, one can make a rough guestimate of 10-14 percent of the cost of the Vendor Agreement of

USD$1.5 billion ending up in the pockets of a f ew of f icials and their f at cat cronies and/or being lost

through f raud, waste, abuse and gross incompetence.

Rooting out corruption in telecommunications sector

The war against corruption in Ethiopia cannot be won by selectively “catching” a f ew token corrupt of 

ficials out of power and their associates and putting them on show trials. The solution to corruption in Ethiopia is not having Twiddle Dee investigating and prosecuting Twiddle Dum. As the late Meles Zenawi once remarked in the context of 10,000 tons of cof f ee which disappeared f rom the warehouses, “We all haveour hands in its disappearance.” Those in power and those removed f rom power on allegations of

corruption have their hands deep in the cookie jar. Everyone knows that are two sides of the same coin.

The only dif f erence is that when the coin is f lipped, one side is down and out and the other up and about.

Those in power cannot aspire to sainthood by crucif ying their buddies who were f eeding with them at the

same trough of corruption just weeks ago. Those in the regime pointing an index f inger of corruption on

their f ormer brethren should be aware that three f ingers are pointing directly at them. They are not above

suspicion or reproach when it comes to corruption. They are as guilty or as innocent of corruption as the

ones they have arrested and jailed.

Those in the regime should not insult our intelligence by trying to pass of f Mickey Mouse corruption

investigations f or real prof essional no-stones-lef t-unturned investigations of corruption using state-of -

the-art f orensic accountancy and white collar crime investigative techniques. I say Mickey Mouse not to

ridicule but to describe accurately a state of f acts. The so-called anti-corruption agency, having

investigated two dozen Customs of f icials and their alleged collaborators f or 2 years, arrested and jailed

them has yet to produce credible evidence of their criminal culpability. In an incredible af f ront to the

principle of the rule of law, the “anti-corruption” agency has taken repeated leaves of court to gather

evidence on the guilt of these suspects. Could there be a more Mickey Mouse system of justice (even

worse than a kangaroo court) in the world?

The World Bank prescribed the right medicine f or corruption in its 1998 report. (Those who do not want to

f ace f acts can try to distract attention f rom corruption in Ethiopia by criticizing the World Bank f or being a

“neoliberal” institution and casting aspersions on it.) The f act of the matter is that the WB identif ied the

most important and proven components of any anti-corruption ef f orts: civil society and media institutions.

In the f ight against corruption, it is vital to “strengthen the links with civil society and the private sector to

identif y critical areas relating to corruption”. Vigilant civil society institutions which work f reely at the

grassroots levels and provide anti-corruption awareness, education, training and monitoring are the f irst

line of def ense and the f irst responders against corruption. The independent press must f lourish so that it

can aggressively and doggedly investigate and report corrupt of f icials and practices f or public scrutiny. In

the democratic countries, it is the independent media which seeks out and exposes corruption, f raud,

waste and abuse in government. It is the independent media that provides the public a voice to speak out

against corruption and empower ordinary citizens to pursue their corruption complaints against of f icials

and work with government to promote good practices.

The WB is right in prescribing the “elimination of excessive regulation” and “promotion of competitive

market conditions and greater transparency”. In the telecommunications sector in Ethiopia, regulations are

used to ensure regime of f icials and their cronies can suck dry a particularly lucrative sector of the economy.

Telecommunications is a cash cow that can be milked endlessly. Deregulating and de-monopolizing the

telecom sector means competitive rates, cheaper operational costs and greater public access to and

expansion of telecom services. It also means less cash in the pockets of regime of f icials and their cronies.

There is no economic or commercial reason why the telecom sector cannot be de-monopolized and f ull

competition by domestic and f oreign companies allowed to provide cost-ef f ective and ef f icient nationwide

telecommunications services.

The WB is correct in urging “dialogue among Parliament, Civil Service, Civil Society, the Private Sector, and

the Media” and “f acilitating dialogue among government, the Chamber of Commerce and other members of

the business community, and civil society on implementing the anti-corruption program and developing

complementary activities.” Anti-corruption ef f orts must be multipronged and not lef t to an anti-corruption

agency which itself is corruption suspect. “Outsourcing” the management of the telecom sector f or a

couple of years is no cure f or corruption. It has been reported that the regime agreed to pay some 30

million euro to a European company to manage its telecommunications sector through 2012, much of it to

cover the salaries and expenses of 24 personnel. Another boondoggle to continue corruption?

In my recent commentary “The Corruption Game”, I questioned whether the arrest of a couple dozen

corruption suspects in the Customs Authority was a shot across the bow in the “war against corruption” or

a public relations stunt. I concluded that the regime was “showboating and grandstanding the corruption

issue to nail its opponents and get public relations credit and international handouts at the same time.” I

opined that the whole ef f ort was a “public relations political theater” by the regime “desperately trying to

catch some positive publicity buzz in a media environment where they are being hammered and battered

everyday by human rights organizations, NGOs, international media outlets and others.” I still believe that

deciding on the integrity of a corruption investigation of one group of corrupt of f icials in power against

another group of corrupt of f icials out of power is like trying to select a beauty queen in a pageantry of

monkeys, to allude to an old Ethiopian proverb.

But even if the whole ef f ort is window-dressing, I will give Hailemariam credit f or aspiring to achieve a goal

of clean government instead of clone government. Even though Hailemariam has said many times he will

unwaveringly f ollow Meles’ f ootsteps, it is possible f or him to rise up f rom a quagmire of corruption and

walk on the path that could lead to “radical improvements in terms of governance and democracy.” In the

meantime, ordinary citizens, those out of power, abused by power, who f ell f rom power, who could not care less about power, the powerless, the disempowered or the powerf ul, should heed Edward Grif f in’s

counsel: “To oppose corruption in government is the highest obligation of patriotism.”

Prof essor Alemayehu G. Mariam teaches political science at Calif ornia State University, San Bernardino and is a practicing def ense lawyer.