Ethiopian Telecom Corporation or Tele-corruporation? By Alemayehu G Mariam

June 17th, 2013 Print Print Email Email

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

In the Government’s view, the following are the major determinants of corruption: a poorly functioning 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a new yet rudimentary government, based on a federal structure; and weak budgetary and financial control, with an outdated procurement structure, and poorly trained financial staff…

That WB report made a number of recommendations to combat corruption including, “strengthening links with civil society and the private sector to identify critical areas relating to corruption”, “elimination of excessive regulation”, “promotion of competitive market conditions and greater transparency”, and facilitation 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 transformed into a bottomless vortex of corruption, fraud, waste and abuse of public funds, including foreign aid and international loans. The “poorly functioning legal and judicial system” evolved to become an exquisite kangaroo court system which permits arrest and incarceration of suspects without sufficient evidence. (Ethiopia is the only country in the world where the prosecution can arrest and jail suspects indefinitely while repeatedly asking leave of court to gather evidence of guilt on the suspects!) The “poorly trained staff” evolved into a sophisticated band of official 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 family members, associates, cronies and supporters, looted Nigeria’s coffers to the tune of over USD$16 billion.

The two most effective 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 frozen the assets of the last two remaining groups – the leading women’s rights organization, the Ethiopian Women Lawyers Association EWLA) – which has provided free 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 Africa, after 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 financial flows” (illegal capital flight, mispricing, bulk cash movements, hawala transactions, smuggling, etc.) out of developing countries, reported: “Ethiopia lost $11.7 billion to outflows 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 for its official 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 findings 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, fraud, deception, collusion, cartels, abuse of power, embezzlement, trading in influence, money laundering, and similar unlawful actions.” Billions of dollars have been lost in the telecommunications sector from outright theft, fraud, waste, abuse, profiteering, nepotism, kickbacks, sweetheart deals, shady dealings, malfeasance, 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 factors including an “environment where there is a combination of exceptionally high investment costs and poor service delivery”, “lack of accountability for 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 following ironic observation:

Ethiopia boasts the oldest functioning telephone system in Africa. In 1894, just 17 years after 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 fixed, wireless and mobile network infrastructure, including third-generation (3G) mobile technology as well as a national fiber-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 field in the laying of fiber-optic cable, yet suffers from 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 infrastructure the same year Europe laid its plan for the “Scramble for Africa”. In 1894, the Berlin Conference was held to enable European nations to chop up Africa and colonize it without the need for imperialistic wars among themselves. By 1904, telegraph lines ran into the capital Addis Ababa from Harar in the east, Tigray in the north and Jimma in the south.

According to Freedom House, in 2011, mobile, internet, and fixed line telecommunications in Ethiopia is the second lowest in all of Africa. According to the International Telecommunication Union (ITU), “in 2011, there were only 829,000 fixed telephone lines in actual operation (a decrease from 908,000 lines in 2010), serving a population of 83 million for a penetration rate of less than 1 percent.” Internet penetration in Ethiopia, the second most populous country in Africa with a population approaching 90 million in 2013, is less than 1 percent (0.7%), keeping that country at the tail end of all African countries; and for that matter all countries in the world. The bar graph displayed below (obtained from the WB report) shows that in 2009, Kenya, Sudan, Somalia, Djbouti and Eritrea were ahead of Ethiopia in the percentage of internet users, and for all practical purposes in mobile and fixed line telecommunication services as well.

For crying out loud, how is possible for a country that has had telecommunications services for 119 years and “boasted having the oldest functioning telephone system in Africa” to have the lowest telecommunications penetration rate in Africa today?

In the name of the Almighty, how is that possible for a country that has invested “US$14 billion in infrastructure development between 1996 and 2006” and made “exceptionally heavy recent investment in its telecoms infrastructure” to have the lowest telecommunications penetration rate in Africa?

How is that possible for a country whose economy has allegedly been growing at galloping double-digit annual rates for 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 fixed-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” from 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 manifests itself in a number of ways. ETC charges excessively “high rates for 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” following the disputed 2005 elections and “banned telephony (telecommunication services for the purpose of electronic transmission of voice, fax, 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 failed 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 efficient 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 for the regime members, their cronies and fat 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 firm plans to allow another operator to enter the market.” So, Ethiopia, the first to have telecommunications in all of Africa in 1894 today finds itself at the tail end of the telecommunications revolution in all of Africa!

Rigged contracts: ground zero for corruption in the telecommunications sector

Ground zero for 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 for financing, 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 “for a period of three years, to place all telecoms contracts with the supplier. Specifically, the agreement required the ETC to place nine prespecified equipment packages with the supplier.” According to the WB report, there was “no commercial justification for the award of such a large contract to one supplier”. The Agreement was signed without “competitive tender taking place” and there was no “effective contractual mechanism for price protection and technical compliance.” The Agreement “as signed provided for a 13-year loan period, with the first three years being interest-free.”

The rigging of telecommunications procurement is mindboggling. What is amazing is not only the fact that there was no competitive tender for either financing or equipment supply or even that the whole telecommunications kit and caboodle was handed over to one vendor; rather it is the cavalier, disdainful 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 for the vendor finance contract was initiated by the ETC through a request to several suppliers. The equipment to be supplied under the proposed financing 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 financing. 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 unfavorable contract terms for 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 different equipment packages being sought (for example, mobile, customer data center, and Internet) could have been placed with different suppliers and still have resulted in a compatible and efficient 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 before agreement on either the specification or price—and without a sufficient 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 for the debarment of poorly performing suppliers, but the ETC does not appear to exercise this right. Some prequalifications and tenders allow too much room for subjective assessment, potentially causing some suppliers to be inappropriately eliminated from the tender list.”

There were no ascertainable “procedures for ensuring technical quality and competitive pricing.” There was no way of determining “whether prices far 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-off 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 for corruption as a result of an 2007 audit report that suggested irregularities in purchases from 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 “former ETC CEO and 26 former ETC executives for allegedly procuring low- quality equipment from 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 so-called anti-corruption agency “arrested a senior ETC manager after receiving an audio recording and transcript from an anonymous source in which the manager is allegedly recorded soliciting a bribe from 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 few officials and their fat cat cronies and/or being lost through fraud, waste, abuse and gross incompetence.

Rooting out corruption in telecommunications sector

The war against corruption in Ethiopia cannot be won by selectively “catching” a few token corrupt officials 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 coffee which disappeared from the warehouses, “We all have our hands in its disappearance.” Those in power and those removed from 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 difference is that when the coin is flipped, one side is down and out and the other up and about. Those in power cannot aspire to sainthood by crucifying their buddies who were feeding with them at the same trough of corruption just weeks ago. Those in the regime pointing an index finger of corruption on their former brethren should be aware that three fingers 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 off Mickey Mouse corruption investigations for real professional no-stones-left-unturned investigations of corruption using state-of-the-art forensic accountancy and white collar crime investigative techniques. I say Mickey Mouse not to ridicule but to describe accurately a state of facts. The so-called anti-corruption agency, having investigated two dozen Customs officials and their alleged collaborators for 2 years, arrested and jailed them has yet to produce credible evidence of their criminal culpability. In an incredible affront 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 for corruption in its 1998 report. (Those who do not want to face facts can try to distract attention from corruption in Ethiopia by criticizing the World Bank for being a “neoliberal” institution and casting aspersions on it.) The fact of the matter is that the WB identified the most important and proven components of any anti-corruption efforts: civil society and media institutions.

In the fight against corruption, it is vital to “strengthen the links with civil society and the private sector to identify critical areas relating to corruption”. Vigilant civil society institutions which work freely at the grassroots levels and provide anti-corruption awareness, education, training and monitoring are the first line of defense and the first responders against corruption. The independent press must flourish so that it can aggressively and doggedly investigate and report corrupt officials and practices for public scrutiny. In the democratic countries, it is the independent media which seeks out and exposes corruption, fraud, 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 officials 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 officials 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 officials and their cronies. There is no economic or commercial reason why the telecom sector cannot be de-monopolized and full competition by domestic and foreign companies allowed to provide cost-effective and efficient nationwide telecommunications services.

The WB is correct in urging “dialogue among Parliament, Civil Service, Civil Society, the Private Sector, and the Media” and “facilitating 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 efforts must be multipronged and not left to an anti-corruption agency which itself is corruption suspect. “Outsourcing” the management of the telecom sector for a couple of years is no cure for 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 effort 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 officials in power against another group of corrupt officials 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 effort is window-dressing, I will give Hailemariam credit for aspiring to achieve a goal of clean government instead of clone government. Even though Hailemariam has said many times he will unwaveringly follow Meles’ footsteps, it is possible for him to rise up from 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 fell from power, who could not care less about power, the powerless, the disempowered or the powerful, should heed Edward Griffin’s counsel: “To oppose corruption in government is the highest obligation of patriotism.”

Professor Alemayehu G. Mariam teaches political science at California State University, San Bernardino and is a practicing defense lawyer.

  1. Gebre
    | #1

    whatever your motive and tone may be, it is good to expose corruption as it is a threat to the very survival of our beloved country, ETHIOPIA. However, I was looking for your article in the hot issue of the week: the dam undam controversy, as you love to say the latter. As this is a big national agenda,you have to voice loud either infavor of dam or undam.

  2. Shibru
    | #2

    Corruption in Ethiopia is like standing eyes very close to a wall — you cannot see its dimensions; but you can simply feel how huge it is. It is an open secrete that PM Hailemariam will not be in a strong position to dismantle the corrupt gangsters of former bandits who are now “generals”; he may have to leave with that fact. One thing — a very important legacy, though — he could leave behind will be to facilitate a sudden, and yet, an irreversible and un-sabotageable freedom for Civil Society, the Private Sector, and the Media to stand against corruption even for a brief moment in that country. He should “give” the citizens the “Day of Anti-Corruption” when they remember, demonstrate against, hold public speeches, etc on corruption. The corrupts will be on the verge of weathering away as it was demonstrated post 2005 election. While that will fetch him curse and bad reputation from ethnic-based “generals” and their cronies, the entire corrupt security establishment stuffed mainly by one ethnic group, and even may invite some kind of coup to his government, it is a risk worth taking for the salvation of Ethiopia. He will be remembered in Ethiopian history for generations to come. After all, the suckers will eventually facilitate their departure and potential plan on an all-out civil war in that country so than no one will focus on their arrest from wherever they will be dispersed to.

    Prof. Alemayehu, I hope you will expose to the World the huge corrupt practice that is at its full swing in METEC (Metals & Engineering Corporation) where consultants are hired because of their ethnicity, illiterate colones are paid large chunk of salary as Department Heads in areas they are not even aware of (remember that “colonel” who was made to become the Finance Manager of METEC at the former Awash Construction SC, who dismantled walls after walls to create a lavish office for himself, and eventually asked for the Amharic translation of thousands of pages of financial reports. When he was unable to “manage” as planned, he was made Logistics Manager at METEC — if this is not a corrupt practice, then what?). ~

  3. Dawi
    | #3

    [[..What is amazing is not only the fact that there was no competitive tender for either financing or equipment supply or even that the whole telecommunications kit and caboodle was handed over to one vendor; rather it is the cavalier, disdainful 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:al....]]

    What the Prof. purposely omits in telling us that you need to have cash or bank funding to put out a tender to international vendors; when you don’t have the cash/funding any sane Government goes with a vendor who bring their own MONEY or can find their own funding.

    China is the biggest lender to Africa, providing over 10 billion to Angola, Mozambique, and Nigeria alone. The prof. just talks about what the World Bank writes. Not only The World Bank, have their own corrupt practices, but compared to China the loan they offer to all of sub-Saharan Africa is less 1/3 of China’s. China is the biggest lender to sub Saharan Africa.

    Ethiopia gives contracts to a Chinese Vendor because they bring the financing with them. So the corruption Prof. Al is talking about is a secondary issue to say the least.

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