Category: Uncategorized

Intellectual property refers to inventions of the mind that are intangible in nature and are protected such as trademarks, Patents, Copyrights, and related rights and industrial designs.

They are a core component of most businesses in the 21st Century and valuable assets for which management efficiencies are as important as any other asset. The dynamics of globalization and the effects that it has on strategies for every business, whether national or multinational, require that businesses pay closer attention to opportunities that help maximize benefits to the company and reduce costs to free up resources for other strategic interests of the business.

Given its territorial nature, the protection of IP has often been undertaken by local, regional, and multinational entities at the national level. That means that subsidiaries or branches at the national level are left to determine and follow up on the protection and enforcement of IP rights in their respective jurisdictions. This in turn impacts the cost of protection and enforcement, quality control, and ultimately the overall business strategies of the group.

A number of regional and international frameworks for IP protection however exist that can help reduce dispersed protection measures and facilitate central management and uniform strategy formulation for the group without impacting on local peculiarities of the business. Though enforcement ultimately remains territorial, these regional and multinational processes greatly contribute to better and central control of enforcement strategies and facilitate the exchange of best practices.

The ARIPO System

In this edition, we provide commentary on the ARIPO System which is the key Africa region framework of significance to multinationals with Kenyan operations/interests.

ARIPO was the result of an idea mooted at a regional seminar on patents and copyright held in Nairobi in the early 1970s and the first draft agreement on the creation of a regional intellectual property organization was adopted in 1976 by a diplomatic conference – The Lusaka Agreement [also known as the draft Agreement on the Creation of the Industrial Property Organization for English-speaking Africa (ESARIPO)]. The idea was that the organization would serve mainly Anglophone countries. In practice that remains the case with very few exceptions. A number of lusophone and francophone countries have since joined ARIPO (The latest being the Republic of Sao Tome and Principe). Membership remains open to any member of the African Union or the Economic Commission for Africa.

The principal idea behind the establishment of ARIPO was the pooling of resources of member countries in industrial property matters in order to utilize the maximum available resources in these countries to ensure effective protection of industrial property, capacity building, and training of staff in their respective industrial property institutions, development, and harmonization of laws and general efficiencies.

Legal Framework

The Lusaka Agreement on the Creation of the African Regional Intellectual Property Organization (ARIPO)

The Lusaka Agreement was adopted at a diplomatic conference at Lusaka (Zambia) on December 9, 1976, and established ARIPO at Article 1 thereof.

Pursuant to its functions and powers under the Agreement (Article VII) the Administrative Council of ARIPO has developed protocols and regulations that form the background of the legal and operational design of intellectual property protection in member states under the system. These include:

The Harare Protocol on Patents and Industrial Designs within the Framework of the African Regional Industrial Property Organization

The Banjul Protocol on Marks; and

The Swakopmund Protocol on the Protection of Traditional Knowledge and Expressions of Folklore.

Membership to the Lusaka Agreement does not necessarily imply membership to the protocols. Each protocol applies to different aspects of intellectual property and membership to each is voluntary.

The Harare Protocol

The Harare protocol applies to the protection of patents and Industrial designs and currently has 19 contracting States, namely; Botswana, The Gambia, Ghana, Kenya, Lesotho, Liberia, Malawi, Mozambique, Namibia, Rwanda, Sierra Leone, Sudan, Swaziland, Tanzania, Uganda, Zambia, Zimbabwe and the Democratic Republic of São Tomé and Príncipe (the latest member as at August 19, 2014).

How the filing System works: brief overview

The Harare Protocol provides a framework for the filing and protection of patents and industrial designs within member states.  The Protocol is supplemented in its provisions by administrative regulations that make further and detailed provisions for the manner in which an application is treated from the date of filing to the grant of patent or refusal as the case may be.

There are principally two regulations under the Harare protocol in this regard;

1. The regulations for implementing the protocol on patents and industrial designs within the framework of the African Regional Intellectual Property Organization (‘the regulations); and
2. The administrative instructions under the regulations for implementing the protocol on patents, industrial designs and utility models within the framework of the African regional intellectual property organization (the Administrative instructions)

The regulations are made by the Administrative Council pursuant to section 5 of the Harare Protocol and mainly deal with substantive matters relating to the content of applications filed with the ARIPO office including on the requirements for patentability, the right of priority, Appeal procedures against decisions of patent examiners and treatment of PCT applications under the ARIPO system.

Administrative instructions, on the other hand, are made by the office of the Director General of ARIPO pursuant to rule 2(5) (a) of the regulations and mainly deal with the day-to-day administrative requirements of ARIPO including the formality details in respect of applications under the protocol, filing timings, fees payable for each service, detailed steps in the filing and examination of applications up to grant, notification and communication procedures, the forms to be used for various filings etc.

Patents

In summary, the ARIPO system is registration-based and subject to notifications of refusal by national offices whereas the PCT system is a filing system.

An applicant for the grant of a patent for an invention or the registration of an industrial design can, by filing only one application, either with any one of the Contracting States or directly with the ARIPO Office, designate any one of the Contracting States in which that applicant wishes the invention or industrial design to be accorded protection.

The ARIPO Office, on receipt of the patent application, undertakes both formality and substantive examination to ensure that the invention that is the subject of the application is patentable (i.e. it is new, involves an inventive step, and is capable of industrial application).

If the application complies with the substantive requirements, copies thereof are sent to each designated Contracting State which may, within six months, indicate to the ARIPO Office that, according to grounds specified in the protocol, should ARIPO grant the patent that grant will not have effect in its territory.

For industrial design applications, only a formality examination is performed. If the application fulfills the formal requirements, the ARIPO Office registers the industrial design which has effect in the designated States. However, the same right to communicate to the ARIPO Office within six months that the registration may not have effect in the designated States concerned is reserved.

The Administrative Council, at its Second Extraordinary session held in April 1994, adopted amendments to the Harare Protocol and its Implementing Regulations to create a link between the protocol and the WIPO-governed Patent Co-operation Treaty (PCT). This link commenced operation on July 1, 1994, and has the following effects:

Any applicant filing a PCT application may designate ARIPO which in turn means a designation of all States party to both the Harare Protocol and the PCT;

The ARIPO Office acts as a receiving office under the PCT for such States; and

The ARIPO Office may be elected in any PCT application.

All current Harare Protocol Contracting States are also signatories to the PCT.

The Banjul Protocol

The Banjul Protocol on Marks, adopted by the Administrative Council in 1993, establishes a trademark application filing system along the lines of the Harare Protocol. Under the Banjul Protocol, an applicant may file a single application either at one of the Banjul Protocol Contracting States or directly with the ARIPO Office. The application should designate Banjul Protocol Contracting States as the States in which the applicant wishes the mark to be protected once the ARIPO Office has registered it.

States currently party to the Banjul Protocol are Botswana, Lesotho, Liberia, Malawi, Namibia, Swaziland, Tanzania, Uganda and Zimbabwe. (Total: 9 States.). Kenya is yet to accede to this treaty so trademark filing can only be done locally or through the Madrid system as we shall see in the next edition of the newsletter.

Since 1997, the protocol has been extensively revised in order to make it compatible with the TRIPs Agreement and to make it more user-friendly.

Conclusion

The ARIPO system is highly advised for clients with regional interests. We represent a number of clients in patent applications using the system and recommend it for cost savings and efficient management of the application process (more so for bulk applications) in several member countries.

In the next edition of the newsletter, we shall provide commentary on international filing systems to give a broader perspective for multinationals operating in Africa and beyond.

Conventional debt and equity financing models have become largely inaccessible amidst the economic slump that has been occasioned by the global financial crisis. The ramifications of this have been felt in Kenya where there has been a slow-down in lending to the private sector. This has inadvertently resulted in a deceleration of economic growth as traditional lenders have scaled back on loan disbursements. This has also been exacerbated by the capping of interest rates chargeable by banks and financial institutions which was introduced in 2016.

The decline in credit issuance and uptake has affected the recent slowdown of Kenya’s economic performance due to the general election in 2017 which greatly affected the country’s economic outlook. These are clear manifestations of a paradigm shift needed in Kenya in the manner in which capital is raised by various entities. But there is hope, with the world economy bouncing back from the global recession in 2010, reforms have been made in the traditional financing models in Kenya. Against this backdrop, companies now have the recourse to explore alternative financing models to remain competitive and profitable.

Sale and Leaseback Transactions

Sale and leaseback financing has proved to be an attractive option for some companies that seek to keep up with their growth strategies. Essentially a sale and leaseback transaction involves a sale of an interest in property with a reservation on the possessory terms. The underlying characteristic of these kinds of transactions is that the seller acts as a lessee and they raise the capital through the property that they hold by transferring the property to a buyer through the sale. This transaction enables the seller to dispose of the property and obtain capital injection for the business while maintaining the use of the same property at an agreed lease premium for a specified term. This is especially beneficial to a buyer who seeks to incur the least possible maintenance costs of the property.

Characteristics

A sale and leaseback financing model varies from traditional financing models because it typically entails:

A sale of assets by an entity that desires to raise capital from the property to an investor who seeks to achieve a low-risk, high-yield investment

Simultaneous obtaining of a long-term lease of the property by the seller-lessee from the buyer-lessor which enables the continuing possession and use of the property by the seller-lessee in exchange for payment of rentals at an agreed premium

The retention by the seller-lessee of most of the risk and rewards incident to ownership save for the right to mortgage where the lease is an operating lease

Transfer of substantially all the risks and rewards incident to ownership where the lease is a capital lease.

Classification of Leases

Whether a lease shall be classified as an operating lease or a capital lease is usually agreed upon at the inception of the transaction. It is important to classify the lease the parties intend to enter into as both have different effects on the parties.

A lease will be classified as an operating lease where the rental premiums are considered operating expenses in the seller-lessee’s book of accounts, and the property leased does not form part of the seller-lessee’s balance sheet. On the other hand, a capital lease is considered a loan to the seller-lessee and is stated as such in the seller-lessee’s books of account. Most leases in a typical sale and leaseback transaction will be operating leases. However, a capital lease would arise where there is a buyback agreement contained in the lease; there is a buyback option with a defined price in the lease; or the lease value is greater than ninety percent (90%) of the value of the property.

Advantages and Disadvantages

Certain advantages have been identified to inure with the sale and leaseback financing model. One key motivation for adopting this financing model is the tax advantages that flow from these transactions. It has been noted that in the majority of these transactions, the seller is usually motivated by the need to realize immediate loss which is used to offset the seller’s operating income. The seller in essence receives proceeds from the sale of a non-liquid asset, yet retains for a term the use and possession of the asset.

The seller in a sale and leaseback transaction obtains a greater amount of capital through a leaseback than when they opt for conventional types of borrowing.

Needless to say, this financing model is essential in providing working capital to the seller-lessee who will realize approximately one hundred percent (100%) of the market value of the property unlike debt and equity forms of financing which may not result in the same returns. This is especially important in markets experiencing fluctuations in conventional lending sources.

For the buyer-lessor, this financing model allows it to have a hands-off approach to the management of the property as it incurs no responsibility for the operational or managerial aspects of the property which is left to the seller-lessee.

A sale and leaseback transaction also comes with its fair share of challenges, a notable one being a high-interest rate on the lease that the rental property may attract. Tax implications may also be evident with recent changes in the International Financial Reporting Standards.

The fact that the property is no longer under the ownership of the seller lessee also means that the seller-lessee may have no say with regard to the interest that the buyer-lessor will charge on the leased property. This may in the long run mean that the seller-lessee has to incur higher costs in using and managing the property as this responsibility does not rest with the buyer-lessor. This denotes an inherent risk that is evident in many lease arrangements.

It is clear that the sale and leaseback financing model is an option Kenyan companies could consider in their quest to raise capital to finance their growth strategies in the market. Numerous advantages can be drawn from the adoption of this model, especially in light of the drawbacks of conventional financing models.

Moreover, this model is attractive to entities that are unable to attract a wide variety of financing. This financing model may be useful for companies that may want to accrue some capital to use for their expansion initiatives. Ultimately, these entities could benefit from unlocked real estate value, reduction in a company’s investment in non-core business assets, such as buildings and land, and freeing-up of the entity’s cash in exchange for executing a long-term lease

Mergers and acquisitions (M&A) activities have become an important channel for investment in Africa for both global & local market players.  Over the past decade, Africa’s real GDP grew by 4.7% a year, on average—twice the pace of its growth in the 1980s and 1990s. Therefore, the continued desire to purchase and acquire financial institutions in Africa is not by accident. As the continent readies itself for post-pandemic recovery, the opportunities presented by the AFCFTA across Africa and the post-pandemic focus will remain key factors in attracting valuable mergers and acquisition activity. This article examines the case of Crane Bank Uganda Limited (CBL) in Uganda and offers insights on the role of central banks as statutory liquidators and the risks businesses must avoid while doing business in Africa.

CBL was closed and placed under receivership by the Bank of Uganda (BOU) in September 2016 following an audit report that revealed insufficient capital levels, shrinking liquidity ratios, surging loan default levels, and gross mismanagement, among others. The non-performing loan ratio recorded in the bank’s credit portfolio was estimated at 30 percent, a figure higher than the overall industry loan default rate that stood at less than 10 percent during the same period. Bank of Uganda subsequently transferred assets of CBL to DFCU Bank (a rival bank in Uganda) in an acquisition transaction the subject of this article.

Dr. Sudhir Rupareila (largest shareholder) was subsequently sued by BOU as a liquidator for siphoning $111.8 million from the failed bank over three years. The Liquidator equally sought recovery of 48 properties forming CBL’s branch network across Uganda held in the names of Dr. Sudhir Rupareila and Meera Investments as shareholders of CBL.

Uganda’s auditor General’s report revealed that BOU did not carry out a valuation of the assets and liabilities of CBL but relied on the inventory report and due diligence undertaken by DFCU in accepting their bid. BOU invited DFCU to bid for the purchase of assets and assumption of liabilities of CBL on 9th December 2016 while DFCU submitted the bid on the 20^th December 2016 a day before the production of the inventory report.  It is not surprising that DFCU 2021 results showed it had lost UGX313 billion or 12% of its customer deposits. Deposits with their lending dropping by 15% from UGX1,775.3 billion to UGX1,508.4 billion affecting the value of their total assets by nearly 10%

Parliament probe into the sale of CBL revealed that there were no guidelines or policies in place to guide the identification of the purchasers of banks to determine the procedures for the sale and transfer of assets and liabilities of the defunct banks to the eventual purchasers and that BoU did not document the evaluation of alternatives and the assumptions arrived contrary to section 95 (3) (b) of the FIA, 2004.

The reliance by BOU on the due diligence undertaken by an interested party and eventual purchaser was imprudent, and an abdication of its role under section 95 (3) of the FIA, 2004. BoU in conducting this sale owed a fiduciary duty and duty of care to ensure that all its activities are conducted in the best interests of the financial institution. Interestingly, the Supreme Court of Uganda on the 25^th day of June 2022 placed a check on the supposed blanked authority of BOU as a statutory liquidator holding that liquidation of the defunct Crane Bank did not affect its corporate existence as a company. Once liquidation ended, the Shareholders were entitled to reclaim whatever assets were held by the company after the statutory liquidation. The Directors of Crane Bank successfully blocked the takeover of properties claimed by BOU as statutory liquidator as forming and parcel of the liabilities taken over by DFCU upon acquisition of the defunct bank.

Availability of credit and at competitive prices are major factors that promote the growth of businesses. Two of the main problems that face Ghana’s small and medium-scale enterprises arethe unavailability of credit and the cost of credit. A critical look at this problem reveals that it is not primarily unavailability but rather, the conditions for accessing available credit that most entities are unable to meet. In particular, the requirements for businesses to provide comfort to financial institutions on their ability to repay the loan and acceptable collateral as a fallback measure in the event that they are unable to repay.

We will take a look at the issues relating particularly to collateral arrangements from both the perspective of borrowers and lenders.

 

Funding of Businesses

Businesses require capital for their operations to generate income. Capital is provided in two main ways – through the resources of the business owner or by borrowing from relatives, friends, business associates or financial institutions. Financial institutions lend money to make money. Two factors primarily determine the ability of businesses to obtain credit from financial institutions – first, the legal capacity of the entity and second, its creditworthiness.

For a business to be credit-worthy, it must demonstrate its ability to repay the loan given. It can do this by showing that there are potential future receivables that will be available to repay the loan. A business must demonstrate that:

Lenders will look at the whole business cycle of the entity to conclude on the above factors. Assessing the operations of the business including its potential income is, therefore, key to the ability of the business to secure credit. This will also include looking at the borrower’s previous financial statements to determine the past financial performance of the business. In spite of the borrower’s ability to meet the above conditions, there are events that could happen in the future which may affect the above factors. Lenders, therefore, want a fallback measure to recover loanswhere such future events occur. This introduces the issue of collateral. Typically, if lenders are assured of the above position, the issue of collateral may not arise.

Collateral

Collateral generally covers fallback guarantees and securities available to a lender in the event the borrower defaults in repaying the loan as agreed under the loan agreement. Collateral or security interest may generally cover:

Collateral is a fallback measure. Lenders do not grant a loan primarily with a view to enforce the fallback measure (collateral). Lenders must, therefore, require and obtain any of the above collateral only after assessing that there are potential risks to the operations of the business which may affect the future receivables that will be used for the repayment of the loan.

Over-collateralization

Imagine you have a house valued at Ghc150,000. You have applied to the bank for a loan of GHc10,000 for your company and the bank has requested the house as collateral. In addition, the bank has asked that you provide a personal guarantee in the event the company is unable to pay. Then, for good measure, the bank has asked that you pledge your shares in the company as collateral. This situation is the over-collateralization situation. Another example may be where on an application for a personal car loan, the financial institution requires a guarantee from your employer, your salary to be passed through the financial institution with charge over the account, a charge over the car, assigning proceeds from comprehensive insurance over the car, and taking life insurance with proceeds assigned to the financial institution. This is after the usual requirement for the borrower to pay upfront 10 – 25% of the cost of the car. The situation can be compared to intending to kill a fly with a sledge-hammer. From the borrower’s perspective, that is problematic. The issue of over-collateralization has been one of the silent factors discouraging businesses from accessing credit.

Whilst financial institutions may see it as fully underwriting all possible risk, this adds to the cost of credit particularly since the security documents must be stamped and perfected. The cost of stamping is 0.5% of the secured amount for the principal security, and 0.25% of the secured amount for each additional security. It does not matter if all the security are included in the same document. This must be a problem for the financial institution itself as it makes the institution less competitive. Such cost, together with the interest charged, processing and other applicable fees make the cost of obtaining a loan prohibitive for businesses. This feeds into the narrative of high cost of lending. In order to be competitive, financial institutions must be mindful of the type of security and number of securities to take as a fallback position in the event of default of the borrower. A number of ways are suggested below for consideration by financial institutions.

Avoiding over-collateralization

Any of the suggestions below must be implemented within the context of assessing the potential risks that the collateral is to cover. In order to avoid over-collateralization, the following can be implemented:

The suggestions above are not exhaustive and must be implemented within the specific context of the risk exposure the financial institution intends to cover.

Conclusion

It is important for businesses, especially small and medium–scale enterprises, to always assess the cost of borrowing prior to entering into any financial transaction. A business must check its financial health and ensure that repayment of loans will not have the potential to cripple the business. Where security is required, the business must ensure that the security provided is commensurate with the loan amount plus interest. As much as possible, businesses should attempt to negotiate fair collateral packages rather than settling for over-collateralized loans out of desperation for a loan. Financial institutions should have policies on requirements for collateral and nature of security to take. This will feed into the competitiveness of financial institutions.

Many businesses require financing for growth and financial institutions also need to provide these credit facilities in order to grow. Although lending and borrowing may seem like an everyday transaction and fairly straightforward, it is particularly important for lenders to aim at reducing credit cost while providing financing to businesses. This will make loans more accessible for all types of businesses and will ultimately contribute to business and financial growth for both lenders and borrowers. A win-win for all.

Replacing traditional sources of energy completely with renewable energy is going to be a challenging task. However, by adding renewable energy to the grid and gradually increasing its contribution, we can realistically expect a future that is powered completely by green energy -Tulsi Tanti.[founder of Suzlon Energy]

Ghana’s renewable energy sector again took centre stage at the 2022 COP27 where the President of Ghana assured world leaders of Ghana’s commitment to increase renewable energy in its energy mix as part of the nation’s framework on energy transition. In 2010, Ghana set a target to increase the proportion of renewable energy (solar, wind, mini-hydro, and waste to energy) in its energy mix by 10% by 2020 under the Energy Sector Strategy and Development Plan.  This led to the passing of the Renewable Energy Act (Act 832) in 2011 to provide the legal and regulatory framework for renewable energy activities in the power sector. However, according to the 2020 Energy Outlook for Ghana, by the end of 2020, Ghana had attained less than 2% renewable energy in its energy mix. The 10% target has now been pushed to 2030 under the Strategic National Energy Plan (2019). Achieving this target is heavily dependent on private sector participation in power generation. This article highlights the current state of private sector participation in the renewable energy sector and some challenges that make the sector unattractive for private investment. Some suggestions on what can be done to improve the sector are also discussed in the article.

Status of Ghana’s renewable energy sector

Ghana is endowed with abundant renewable energy potential such as solar, wind, biomass, wave, and tidal energy. Act 832 defines “renewable energy sources” as renewable non-fossil energy sources like wind, solar, geothermal, wave, tidal, hydropower, biomass, and landfill gas. Hydro was also defined as water-based energy systems with a generating capacity not exceeding 100MW (i.e. small-scale hydro). Among these, solar energy has been the most popular due to environmental and social factors.  The Energy Commission, which is the regulator of the sector, has since 2011 issued over 140 licenses for the development of grid-connected solar, wind, biomass, waste-to-energy, and small-scale hydro-renewable projects which demonstrates interest in the sector. However, only eight (8) projects have been developed so far. This is one of the reasons the Energy Commission has since 2017 placed a moratorium on the issuance of wholesale supply licenses for the renewable energy sector.  There are seven (7) solar plants, four of which are owned by state-owned power producers (i.e. Volta River Authority and the Bui Power Authority) and two owned by independent power producers (IPPs); one small-scale hydro plant owned by Bui Power Authority and one biomass power plant owned by an IPP. The installed capacity of these seven projects is 112.1MW which constitutes 2.1% of the total installed energy capacity of 5,449.1MW.

With the amendment of Act 832 in 2020, the definition of “hydro” has been amended to remove the capacity restriction and so, all hydro plants regardless of capacity are considered renewable resources. This brings the Akosombo, Kpong, and Bui hydro plants (which together constitute about 28% of the installed capacity) into the renewable energy mix.

Attempts to attract private sector investment

Generally, the cost of renewable energy projects is known to be high in comparison to non-renewable projects due to factors such as the cost of the technologies, difficulty in obtaining equipment and spare parts, and difficulty in finding the expertise for development, operation, and maintenance. However, project costs have been reduced over the years due to increased investment (public and private) in projects, technologies, and the capacity of the developers. One of the major attempts by states to promote renewable energy is to create an enabling investment climate for renewable energy through its legal and regulatory framework.

Ghana’s Renewable Energy Act has attempted to promote investment in the sector by introducing many incentives. These include:

1. a mandatory connection policy where transmission and distribution system operators are obliged to provide connection services for electricity from renewable energy;
2. a renewable energy purchase obligation where distribution companies and bulk consumers are required to procure a percentage of their total purchase of electricity from renewable energy sources;
3. a feed-in-tariff system comprising of a tariff rate determined by the Public Utilities Regulatory Commission (PURC) which was substantially higher than tariffs for power from other sources and was guaranteed for a ten (10) year period; and
4. the development of the Renewable Energy Fund to provide financial support for the promotion, development, and utilization of renewable energy.

However, with the amendment of the Act in 2020, the purchase obligation is now limited to only bulk consumers. Also, the feed-in-tariff system has been replaced with a competitive procurement system for the purchase of power from renewable energy suppliers. The scrapping of the feed-in-tariff rates may be a result of the reduction in the price of renewable energy systems and the resultant reduced cost of power generation.

Challenges

Considering the number of privately developed renewable energy projects in Ghana, it is clear that the sector has not seen as much private sector investment as expected. Some challenges identified are discussed below.

1. Access to long-term affordable local funding to minimize capital costs is a major challenge faced by players in the sector. Although the Renewable Energy Fund has been set up by the Act, a cursory glance at the government budget over the years does not indicate any specific allocations to the Fund although budgetary allocations are made for renewable energy development. Related to this is the high cost of financing for power projects in Ghana due to Ghana’s high-risk profile for power projects stemming from the country’s credit rating, history of legacy debt, and potential political risks from changes in government or government policy decisions. These risks tend to make financing more expensive. Also, since there are limited local sources of funding, most players depend on external sources of funds which are usually priced in foreign currency and expose the player to foreign exchange risks.
2. Another challenge relates to the solicitation process for power projects. Historically, power purchase agreements (PPAs) have been procured through unsolicited proposals from IPPs. This is one of the reasons for the deemed oversupply situation in Ghana which led to the termination and re-negotiation of some PPAs by the Government of Ghana in 2018. In the absence of a transparent, competitive power procurement process that is based on a needs assessment, private players cannot risk such investments. It is worth noting that in 2019, the government issued a policy for the Competitive Procurement of Energy Supply and Service Contracts. However, this policy is yet to be fully implemented.
3. The limited availability of experienced personnel in Ghana to construct, operate, and maintain renewable energy technology is also a challenge for private players in the sector. The absence of local capacity necessitates expensive foreign expertise which increases project costs. The Energy Commission (Local Content and Local Participation) (Electricity Supply Industry) Regulations (L.I. 2354) which was passed in 2017 intends to bridge the local capacity gap by including mandatory training and employment of locals to build local capacity over time, adequate monitoring is required to achieve local content objectives.
4. Land acquisition is also a major challenge for renewable energy projects especially solar and wind which usually require large tracts of land. Land acquisition in Ghana is, however, fraught with a lack of certainty on ownership of land, multiple sales, and encroachment on project sites. These challenges with land acquisition do not attract investment in the sector.
5. Another challenge is the knowledge gaps in the potential of renewable energy. The general perception is that renewable energy is expensive due to the high initial costs and therefore, renewable energy is not regarded as an economical source of power especially for non-residential purposes. However, the costs of renewable energy technologies have reduced significantly over the years making it a cost-effective source of power compared to non-renewable sources. Also, the role of renewable energy in reducing carbon emissions and combating climate change makes it not only economically beneficial but environmentally sustainable.

Recommendations

A lot can be done to make our renewable energy sector more attractive.

• First, the institutional framework must adopt a more “investor-friendly” approach. This may take the form of creating a well-resourced Renewable Energy desk at the Energy Commission which liaises with other regulators particularly, GRIDCo, the Environmental Protection Agency (EPA), Lands Commission, Ghana Investment Promotion Centre (GIPC), Ghana Immigration Service, National Fire Service and local authorities for all the permits, licenses or any other assistance the developer may require from these institutions. Such a one-stop shop for all regulatory matters will simplify the process for market entry and operation.
• Also, incentives can be introduced to promote private-sector participation. This may take the form of discounted prices for license and permit applications from regulators, provision of land or support with land acquisition, and assistance with access to utility and infrastructure. Also, the development of a carbon market for the trading of carbon credits can be explored as an option to incentivize companies to reduce emissions. For example, the development and utilization of renewable energy power projects will generate carbon credits for organizations which can be traded. Certainly, such a market will require some regulation, and the Government of Ghana has indicated that a carbon market policy is being developed. Such incentives will encourage investment in the renewable energy sector.
• Another way of enhancing participation in the sector is to develop and implement a procurement process that is open, transparent, competitive, and based on a needs assessment. Also, all state entities and agencies must be aligned with this policy to ensure uniformity across the sector. This will help to create certainty in the sector which will encourage private sector participation.
• In line with the objective of the Local Content Regulations, there must be emphasis on technical training and capacity building which aligns with the needs of the renewable energy industry. This will require coordinating with the technical and academic institutions to ensure that the training provided by these institutions aligns with the capacity needs of the industry. Moreover, the implementation of the Local Content Regulations must balance the interests of both local and foreign players so as not to discourage foreign participation. To this end, the Energy Commission should develop a pool of qualified domestic players and service providers that foreign players can partner with to meet local content and local participation requirements.
• Admittedly, access to local funding is crucial and Ghana may not be in the position to provide grants from internally generated funds. However, some sources of local funding can be exploited. For example, The 2021 Guidelines on Investment of Tier 2 and 3 Pension Scheme Funds have introduced Green Bonds as part of the products in which pension funds can invest. According to the Guidelines, pension funds can invest up to 5% of the Scheme Asset under Management (AUM) in Green Bonds and this can be used to provide local funding for renewable energy projects. Also, the Ghana Infrastructure Investment Fund (GIIF) and the newly set up Development Bank of Ghana (DBG) can look into creating sustainable financing products or programs designed specifically for the sector. There are numerous external funds that Ghana can take advantage of to enhance its renewable sector. For example, Ghana has benefited from several grants and programs of the African Development Bank such as the Sustainable Energy Fund for Africa (SEFA), Leveraging Energy Access Finance Framework (LEAF), and the Scaling-Up Renewable Energy Program in Low-Income Countries (SREP) for investment in various aspects of the renewable energy sector. These funds must be applied judiciously towards accessible local financing either through direct government funding or incentivizing local commercial banks to finance renewable energy projects.
• Finally, to increase demand for power from renewable sources, effort must be put into creating public awareness of the need to support the sector as a way of combating climate change and its associated effects. With the combined efforts towards environmental sustainability, it can be expected that there will be increased demand for renewable energy power as a way to reduce carbon emissions. This can already be seen in the growing interest in solar systems for homes, green offices, electric vehicles, and solar-powered streetlights, among others.

Conclusion

The opportunities for renewable energy exploitation in Ghana are endless. For developing countries like Ghana, the transition from conventional energy to green energy will be gradual but must be intentional. To see real impact, the investment climate must support private sector participation if Ghana must meet and possibly exceed its 10% renewable energy mix target by 2030.

 “SIGA is a new institution and I expect that you would help develop a new culture… the attitude must be new king, new law; a new authority, a new culture; a culture of accountable governance and of respecting the norms; sensibilities and practice of good corporate governance.”

These were the words of the President of the Republic of Ghana during the launch of the State Interests and Governance Authority (SIGA). SIGA is the new authority established under the State Interests and Governance Authority, Act 2019 (Act 990)  (‘the SIGA Law’) to ensure that companies and other entities in which the government holds shares are efficiently run and adhere to good corporate governance, and ultimately make profit.

Typically, state-owned enterprises are established for the following reasons:

• Addressing market failures by providing public goods and funding for key infrastructure projects.^[1]
• Supporting vulnerable social groups by protecting jobs in so-called sunset industries.^[2]
• Ensuring stability and affordability of public utility prices.^[3]
• Promoting industrialization, particularly by launching new industries with significant start-up costs and long-term investments.^[4]
• Limiting non-state ownership in specific industries such as the arms and network industries (for national security reasons).^[5]

• Serving as vehicles of innovation, knowledge dissemination, and technological spin-offs.^[6]

Entities with state interest

In many of the world’s major economies, state-owned enterprises play an important role^[7] and the case in Ghana has been no different.

In many of the world’s major economies, state-owned enterprises play an important role and the case in Ghana has been no different.

After Ghana attained independence, the government realized the need to develop the economy in certain major areas. The government felt that some services were so fundamental that the companies that provided them had to be controlled by the State and not left completely in private hands.^[8]

Successive governments have therefore owned or held stakes in businesses operating in key sectors of the economy such as agriculture, agro-processing, mining, commodity trading, manufacturing, utility service provision, and hospitality. This deliberate policy led to the establishment of a myriad of entities with varying levels of government ownership and control.

Under the SIGA Law, businesses that are owned in whole or part by the government are classified under four main groups. They are either State-Owned Enterprises, Joint Venture Companies, or Other State Entities.

State-owned Enterprises (SOEs) are entities whose shares are wholly held or controlled by the Government of Ghana. They are usually entities set up for commercial purposes and may take the form of special-purpose vehicles like ESLA Plc. and Ghana Amalgamated Trust (GAT).^[9]

The last published State-Ownership Report by SIGA[10] stated that there are a total of 132 SOEs in Ghana.

Joint Venture Companies (JVCs) are business arrangements in which different persons or entities contribute capital, labor, assets, skill, experience, knowledge, or other resources useful for the business and share the profits and risks associated. Under Ghana’s State Ownership law, JVCs are those entities in which the government holds majority or minority shares.

Other State Entities (OSEs) are entities that, though not wholly or partly owned by the State, are nevertheless brought under the purview of the SIGA. The Minister of Finance, with supervisory authority over the SIGA, has the power to declare an entity as a Specified Entity; thus, bringing it under SIGA‘s ambit. Examples of Other State Entities are regulatory bodies and statutory agencies.

This article is an inquiry into the issues that underlie the poor performance of a significant number of entities with state interest and provides a commentary on whether the challenges are attributable to the legal regimes that have governed state-owned enterprises.

Down memory lane

State Enterprise Secretariat (SES-1965)

The SES-1965 was first set up by the State Enterprise Secretariat (SES), 1965 Legislative Instrument (L.I. 47) to ensure the efficient running of state enterprises and was directly responsible to the President. The SES had four main divisions;

• Planning and Statistics Division
• Accounts and Audit Division
• Inspectorate Division
• Personnel and Training Division

A look at the structure of the SES-1965 reveals that it was set up mainly to supervise and check the operations and financials of the fifteen (15) manufacturing enterprises and six (6) mixed enterprises that were under its jurisdiction.^[11]  The SES-1965 was short-lived as a result of the 1966 coup, but it failed in its short lifespan to achieve its mandate because it did not wield the power to ensure that its efficiency measures were implemented.

Some scholars have attributed the SES-1965’s failure at the time to the blurring of the responsibilities of the President, Ministers, and the SES-1965 itself.^[12]

State Enterprises Commission (SEC-1976)

The SEC-1976 was established by the Supreme Military Council Decree, 1976 (SMCD 10). This was a commission of a maximum of five members and headed by a chairman. The chairman was supposed to be a Ghanaian of distinction with a minimum of ten years of practical experience in an executive position in business or administration

It is interesting to note that to qualify for the chairmanship of SEC-1976, one had to be at least forty years of age. The rather interesting provision restricting the age of the chairperson may be attributed to the tensions that existed at the time between relatively junior officers in government and the senior commanders of the armed forces.^[13] The senior commanders of the armed forces who had just captured power from junior military officers perhaps wanted to keep the younger ranked officers in check by preventing them from holding influential positions.

Its members were to be appointed by the political administration at the time^[14] and the SEC-1976, as a corporate body, was answerable to the Head of State. The SEC-1976 had both advisory and executive powers over the operations of all statutory corporations. It could recommend the revision of the objectives of any statutory corporation, perform a management audit of officers of statutory corporations, review operations, staff strength, and conditions of service, as well as recommend the closure or reclassification of any entity that was ill-conceived or could not make a profit.

During a parliamentary debate on May 27, 1981, the following reasons were given as to why the SEC-1976 was unable to live up to expectations.

• The range of functions and responsibilities assigned to SEC-1976 was too enormous for its size and capacity.
• It never had its full complement of members over the entire period of its existence.
• It did not have the staff strength and competence to effectively supervise and control the operations of the corporations.
• It had no say in the appointments of the chief executives and directors on the Board.
• There was an overlap in the mandate of some of the ministries and the state-owned enterprises, resulting in unnecessary political interference. This was worsened by the fact that the ministries themselves did not have the time or expertise to supervise or coordinate the corporations.
• Notwithstanding the challenges associated with ministries, the corporations tended to gravitate toward their parent ministries in dealing with their operational challenges rather than SEC-1976.
• The government did not provide the needed capital and financial support.

State Enterprises Commission (SEC-1981)

The SEC-1981 was established by the government of the Third Republic of Ghana after a period of military rule. The enactment of the State Enterprises Commission Act, 1981 (Act 433) replaced the State Enterprises Commission (SEC-1976). One of the key features of SEC-1981 was that it had no executive powers and its functions were mainly advisory.

While the totality of SOEs made a loss during the year in review,

SOEs with minority government interests made a profit.

The State Enterprises Commission Act, 1981 (Act 433) separated the commercial corporations from non-commercial ones. The functions of the SEC-1981 were limited to the industries that were intended by the government to act as purely commercial entities and operate on commercial lines. This change was a reaction to the lack of capacity of the SEC-1976 to adequately supervise all the covered entities.

State Enterprises Commission (SEC-1987)

This was set up by the State Enterprises Commission Law, 1987 (P.N.D.C.L. 170) which repealed the SEC-1981.  It had thirteen objectives, many of which were a repetition of the objectives of its predecessors. Some of the new objectives were the examination of investment proposals of the entities, ensuring the payment of appropriate dividends to the government, recommending government guarantees, credit, and financing, provision of consultancy services at an agreed fee to be paid into the Consolidated Fund, and the possibility of engaging the services of a consultant where it requires such services.

Entities with state interest^[15] were required to submit annual reports and any documents required to the SEC-1987. PNDCL 170 proscribed any expansions or modifications without the approval of a feasibility report by the SEC-1987. The SEC-1987 was answerable to the President through the Minister. The SEC-1987 also had disciplinary powers in the form of recommending the dismissal, suspension, or forfeiture of an officer who contravened the provisions of the State Enterprises Commission Law, 1987 (P.N.D.C.L. 170).

State Interests and Governance Authority (SIGA)

SIGA was established by the enactment of the State Interests and Governance Authority (SIGA) Act 2019 (Act 990) after the findings of a joint Government of Ghana and World Bank study^[16] recommended that the management of SOEs be streamlined and centralized under the government’s oversight to strengthen corporate governance, transparency, and accountability.

Under Act 990, SIGA has five objectives, which are to:

(a) Promote within the framework of government policy, the efficient or where applicable, profitable operations of specified entities;

(b) Ensure that specified entities adhere to good corporate governance practices;

(c) Acquire, receive, hold, and administer or dispose of shares of the State in state-owned enterprises and joint venture companies;

(d) Oversee and administer the interests of the State in specified entities; and

(e) Ensure that:

(i)  State-owned enterprises and joint venture companies introduce effective measures that promote the socio-economic growth of the country including, in particular, agriculture, industry, and services per their core mandates; and

(ii) Other State entities introduce measures for efficient regulation and higher standards of excellence.

It, however, has as many as thirteen functions as opposed to the two of its immediate predecessor. Notable among these functions are the development of a Code of Corporate Governance, assessing the borrowing levels of SOEs by the Public Financial Management Act^[17], advising the government on the removal of chief executive officers and board members of SOEs, coordinating the sale and acquisition of entities with state interests, ensuring adherence to annual performance contracts signed by entities with state interest and advising the minister with oversight over the authority.

Having gone back in time to scan the legal regime governing entities with state interest, it is clear that most of the predecessors of SIGA had the power to punish, or at least, recommend the removal of officers who failed to perform their corporate governance duties.

The current law, Act 990 specifically in sections 4 (i) and (j), empowers SIGA to:

(i) Advise the sector minister on policy matters for effective corporate governance of specified entities;

(j) Advise government on the appointment and removal of chief executive officers or members of the boards or other governing bodies of specified entities;

These wide powers notwithstanding, SIGA, in its latest State Ownership Report[18], only lamented the failure of entities with state interest “to honor their reporting obligations”, and noted that it is “a flagrant violation of the Public Financial Management (PFM) Act, 2016 (Act 921)” and condemned the practice as “a most unfortunate development that needs to be remedied’’.

The paradox of performance

From the foregoing, it can be concluded that the inability of entities with state interest to be efficient and profitable is not caused by a poor legal regime, but by poor implementation of the legal regime. It appears that the less interest the government has in a commercial venture, the more likely it is that the entity will be run efficiently and profitably.

In 2020, SOEs (wholly government-owned) recorded an aggregate loss of GH¢2.61billion while JVCs (with 10-50 percent government ownership) recorded an aggregate profit of GH¢11.81million. Entities in which the government holds an interest of not more than 10 percent^[19] made an aggregate profit of GH¢11.25billion.

Although these figures ought to be considered within the context of the impact of the COVID-19 pandemic, the trend is quite conspicuous. While the totality of SOEs made a loss during the year in review, SOEs with minority government interests made a profit.

While the totality of SOEs made a loss during the year in review,

SOEs with minority government interests made a profit.

SOEs and JVCs have been reporting net losses and net profits, respectively for quite some time now. Net loss for SOEs in 2017 stood at GH¢1,289million compared to net losses of GH¢2,115million and GH¢30,144million for 2016 and 2015 respectively. JVCs made net profits of GH¢711million in 2016 and GH¢800million in 2017.^[20]

Appointments of key personnel to SOEs are usually spoils of war to the lieutenants who fought alongside the king in the trenches during the election campaign. This practice, which was identified as far back as the days of the State Enterprise Secretariat in 1965, must be changed, or at least, balanced with a mechanism that compels the rewarded lieutenants to comply with the corporate governance principles enshrined in the law.

If these are not done, irrespective of the number of times the king changes the law, or the institution implementing the law, the words of Jean-Baptiste Alphonse Karr will still hold truth.

“Plus ça change, plus c’est la même chose”, to wit:  the more things change, the more they stay the same.

“Turbulent changes do not affect reality on a deeper level other than to cement the status quo. A change of heart must accompany experience before lasting change occurs.”

References

[1] Vickers, John, and George Yarrow. 1991. “Economic Perspectives on Privatization.” Journal of Economic Perspectives, 5 (2): 111-132.

[2] H. Christiansen Balancing Commercial and Non-commercial Priorities of State-Owned Enterprises. OECD Corporate Governance Working Papers no.6 OECD Publishing, Paris (2013)

[3] P. Matuszak, B. Kabaciński Non-commercial goals and financial performance of state-owned enterprises – some evidence from the electricity sector in the EU countries J. Comparative Econ. (2021), 10.1016/j.jce.2021.03.002

[4] A. Musacchio, S.G. Lazzarini Reinventing State Capitalism: Leviathan in Business, Brazil and Beyond (first ed.), Harvard University Press (2014)

[5] Robinett Held by the Visible Hand: the Challenge of State-Owned Enterprise Corporate Governance for Emerging Markets World Bank, Washington, DC (2006)[5]

[6] P. Castelnovo, M. Florio Mission-oriented public organizations for knowledge creation L. Bernier, M. Florio, P. Bance (Eds.), The Routledge Handbook of State-Owned Enterprises, Routledge, London & New York (2020)

[7] Maciej Bałtowski, Grzegorz Kwiatkowski, State-Owned Enterprises in the Global Economy June 2, 2022, by Routledge

[8] Mr. K.Addai-Mensah, Member of Parliament for Bantama during the Second Reading of the State Enterprises Commission Bill May 22, 1981

[9] State Ownership Report 2020 – Ministry of Finance of the Republic of Ghana

[10] State Ownership Report 2020 – Ministry of Finance of the Republic of Ghana

[11] Public Corporations in Ghana (Gold Coast) during the Nkrumah Period – Dr. Dennis K Greenstreet

[12]   Public Corporations in Ghana (Gold Coast) during the Nkrumah Period – Dr. Dennis K Greenstreet

[13] Singh, Naunihal (26 August 2014). Seizing power: the strategic logic of military coups. Baltimore, Maryland: Johns Hopkins University Press. pp. 89 & 139. ISBN 978-1421413365.

[14] The Supreme Military Council

[15] With the exemption of 79 entities stated in the Schedule to P.N.D.C.L. 170

[16] On the corporate governance framework of the various SOEs from the year 2013 to the year 2015.

[17] Public Financial Management (PFM) Act, 2016 (Act 921)

[18] 2020 State Ownership Report

[19] Mostly mining companies

[20] 2017 State Ownership Report

Imagine having to spend a great deal of time, effort, and resources to resolve an otherwise avoidable project-related dispute that arises from a contractor’s inability to complete your project within schedule and budget. What’s more, consider having to expend money to resolve a misunderstanding on the parties’ obligations simply because you failed to monitor and ensure that your project objectives were met. The expense, both financially and time, for the resolution of such avoidable disputes especially concerning construction contracts can lead to financial loss, project cost overruns, and delays with attendant opportunity costs. This and many other reasons are why it is vital that upon the execution of a contract for any project or work, steps are taken to manage and monitor the performance of the contractual obligations of the parties.

The construction sector is one of the most active sectors in Ghana with activities cutting across all forms of infrastructure. The construction sector is ranked as one of the highest contributors to Ghana’s GDP and ranked as one of the fastest-growing sectors of the economy. The sector witnessed a positive growth of 14.2% in the first quarter of 2021 according to figures from the Ghana Statistical Services. As a capital-intensive activity, the costs usually associated with the construction of any infrastructure should warrant that its execution must be without disputes or minimal disputes. A major factor in avoiding (or at least minimizing) such disputes and attendant implications is effective contract administration. The focus of this article is to discuss the importance and requirements of administering contracts. It makes a case for the need for prudent contract management or administration and provides a guide for entities and individuals already implementing projects to improve their contract administration practices to achieve excellent results.

The scope and practice of contract administration

In our day-to-day activities, the administration of contracts is evident in one way or the other, when we strive to ensure we get what we pay for from service providers. From the customer who requests the carpenter to produce an item or the one who commissions another professional to build a physical infrastructure. The constant monitoring of project delivery to ensure that one is satisfied with the product or services being obtained under a contract is administering the contract. This is done to ensure that we obtain an end product that is of the requisite quality, on time, and within budget. The failure to monitor the progress of one’s “order” from a service provider can result in having to deal with all manner of misunderstandings.

From the above, contract administration simply refers to the effective management of contracts between an employer or client and a contractor to ensure the successful realization of the contract objectives. The administration of any contract is not limited to any identifiable group of professionals or specialized practice or industry. If one monitors the progress of “personal projects”, then it is undeniable that for major construction projects in which huge resources are invested, the omission of a diligent and professional administration of the contract would come with unfavorable outcomes.

Thus, it is important that project sponsors or financiers, contractors, and in some cases, regulators ensure that prudent administration of contracts is made a part of any project to help the parties effectively measure the performance of contractors. Instituting this as part of any project also helps to achieve a clear understanding of the contract requirements to maximize contractual benefits and avoid all manner of challenges. Even if challenges should exist, the contract being administered will ensure early detection and resolution of challenges thereby reducing bigger or complex problems in the future.

The initiation or commencement of any project or work will require that the parties (client and the supplier) agree on the scope of the required services, the obligations of each party, the reporting requirements and agreements on how potential disputes will be resolved, and other matters. These details will usually be outlined in a written contract after negotiation of the key terms. An important aspect of the entire contract execution cycle is the contract administration process. The process is all-inclusive and often begins from when the contract is awarded through to when:

• The works/project is completed and accepted by the owner or;
• When the contract is terminated per the contract terms;
• Payment has been made;
• All defects have been rectified; or
• Where disputes have been completely resolved.

The administration of any contract may vary from project to project depending on the project type and size. However, the management or administration of the contract requires the contract administrator to possess a high level of accountability and responsibility. The individual must have the knowledge and skill to understand the relevant contractual provisions, obligations, and rights of the parties, understand the nature of each contractual party’s objectives, and ensure that the agreed terms are complied with to ensure those objectives are met. The individual appointed to undertake this role could be an employee or representative of the project owner whose responsibility is to monitor the contract implementation.

Technically, the role of the administrator will commence when the contract is in place, although practically, the responsibilities will have commenced before the contract comes into existence. It is therefore important to ensure that, a contract administrator is involved at each stage of the contract process until finalization. At the early stages of the contractual cycle for a typical construction project, some of the contract administrator’s roles would generally include, advice on the appropriate procurement method to deploy, the selection of the contractor, and the appropriate contract form to use for the project, etc.

In managing the day-to-day activities of any project, the contract administrator must keep a keen eye on any potential issues that may give rise to future disputes and ensure these are addressed at an early stage. To successfully administer the contract, the contract administrator will have to put in place the relevant steps to be adopted to achieve specific outcomes. The steps should identify the specific tasks to be undertaken, break down the tasks into activities, indicate the timelines for performing each activity, and the precise steps involved with carrying out each activity.

The Process of Contract Administration

To have an efficient administration process, it is recommended to set out in a practical manner activities to be undertaken at each stage of the project. That is at the contract preparation stage, the implementation and completion stages.

The following activities or actions are recommended at each stage:

1. Preparation of a Contract Administration Matrix

It is crucial to develop a schedule that outlines or breaks down all the key deliverables or work structures. It must also incorporate dates or milestones in the contract for achieving specific phases or outputs of the work. The matrix or schedule must have the following:

• A breakdown of obligations – the obligations of each party to the contract (including subcontract) must be identified with a list of the specific people who will perform each task.
• Timelines with inbuilt buffer or lead time for performance – the timelines for the performance of each obligation identified must also be noted. The schedule must ensure adequate lead times to avoid delays.
• Risks or dangers – issues that may lead to project delays, cost overruns inability of service providers to perform, etc. must be flagged in the matrix and steps must be taken to address them.
• Risk prevention or mitigation measures – having identified those potential issues that may pose a risk in one way or the other, the specific actions that must be undertaken to address or reduce the impact of the risks should be outlined.

1. Implementation

• Checklist – it is key to develop a list of all the actions that must be undertaken as part of implementation. Specific documents such as permits, licenses, guarantees that must be submitted, notices to be issued, reports to be submitted, etc. must be included in the checklist as appropriate.
• Alerts – reminders for required activities and reports including the formats of the reports and the mode of delivery must be included in the schedule.
• Notices – ensure that a good communication process is established to help both parties achieve a clear understanding of issues. For example, setting up a project-specific email for all persons involved with different aspects of the project implementation is essential for regular updates.
• Meetings – periodical meetings (including site meetings) must be held between all the stakeholders to help facilitate better communication and manage the project successfully. Records of such meetings must be properly kept.
• Use of payment-tied deliverables – adopting a system where payments are tied to the successful execution of various aspects of the project (which are measurable) will aid in effective administration.
• Proactive engagement – it is important to plan, be in control, and manage all the stakeholders and aspects of the project for timely execution.
• Fallback mechanism – to help counter risks that have a higher impact, the development of a contingency measure is necessary for managing risks so that alternative options can be readily deployed where necessary.

1. Completion

• Testing and handover – clearly identify the persons who will engage in quality control and testing and also establish clear criteria or protocols to be followed for testing, inspection, and handover of the project.
• Defect period monitoring – there should be a periodic review of the completion of all defects and any outstanding works. A final inspection with all relevant parties must be carried out ahead of the expiration of the defect period.

Conclusion

An effective contract administration is beneficial to all parties involved in any contract in one way or the other. The need for project sponsors or owners, contractors, and financiers to ensure that the project in which resources are invested is executed within budget and time cannot be overemphasized. Project sponsors will find that an efficient contract administration will allow them to make some real-time decisions, and review and understand all relevant details of the project during implementation. The opportunity to monitor costs, promote transparency in project cost variations as well as enhanced engagement with relevant stakeholders are some of the numerous advantages that come with contract administration.

It is not, therefore, enough to simply execute a contract and hope that the contractor and all other professionals involved will deliver a good project. Attaining quality services that meet the specifications of the contract, timely completion of projects within budget and problem-free close-outs do not happen by chance. It requires thorough management and supervision by a professional who is dedicated to ensuring that your objectives are met. So the next time a project is being developed, remember to put in place an efficient administration process.

In this competitive global economy, where competition is no longer limited by geography or industry, formidable new competitors can arise seemingly overnight. To succeed in the business environment, organizations must be able to inspire all levels of employees to be innovative or risk being overtaken by creative competitors. In such an environment, one of the surest ways for an organization to fail is its inability to innovate.  A major factor that kills innovation is workplace bullying. Bullies not only stifle productivity and innovation throughout the organization, but they most often target an organization’s best employees, because it is precisely those employees that bullies see as a threat. As a result, enterprises are robbed of their human capital in today’s competitive business environment. For organizations to survive, they must root out workplace bullying before it crushes their employees’ creativity and productivity, or even drives out their best employees, fatally impacting an organization’s ability to compete.

This article discusses bullying in the workplace, looking at its various forms and implications. It also discusses cyberbullying in the light of remote working occasioned by the spread of Covid-19. The article will look at Ghana’s regulatory framework on the subject and propose some measures that workers can adopt when bullied. It then concludes with suggestions on the way forward.

Workplace Bullying

Workplace bullying consists of “acts or verbal comments that could psychologically or ‘mentally’ hurt or isolate a person in the workplace. Bullying usually involves repeated incidents or a pattern of behavior that is intended to intimidate, offend, degrade, or humiliate a particular person or group of people. It has also been described as the assertion of power through aggression”[1]. Bullying, therefore, takes the form of verbal, physical, social, or psychological abuse. Concerning workplace bullying, there is usually evidence of interpersonal hostility in the workplace through aggressive behaviors which happen frequently over a long time. Further, it happens where there is an imbalance of power.

Forms of Workplace Bullying

Workplace bullying may take various forms. The verbal or physical abuse may be obvious. However, other less obvious forms include:

1. Requesting an employee to undertake new tasks or tasks that fall outside the employee’s typical duties or skill set without training.
2. Stalling applications for training, leave, or promotion without valid reasons.
3. Removing areas of responsibility without cause.
4. Giving unreasonable deadlines that will set up the individual to fail.
5. Constant or frequent unwarranted supervision by the employee’s supervisor or manager.
6. Persistently ridiculing an employee with the explanation that the employee cannot handle his/her work and thus requires further training though the specific shortfalls are not discussed with the employee.

These incidents may initially seem random. However, they may become continuous and cause the employee to worry that such incidents are a result of his/her actions and cause the employee to fear that he/she is likely to be fired or demoted.  Consequently, thinking about work, even during time off and leave days may cause anxiety, fear, and stress affecting the employee’s physical, emotional, and mental health which may indirectly impact their work output. There are instances where workplace bullying has led to the death of employees by suicide as happened in the Brodie Panlock case in Victoria, Australia where a 19-year-old took her own life after being relentlessly bullied at work leading to the passage of the Brodies Law.[2]

Remote Working and Cyber Bullying

Workplace bullying is not only confined to the physical workplace where the employees meet as a group. The COVID-19 pandemic brought about an increase in remote working, that is, working from home or places other than the physical workplace designated by the employer. As companies shift to remote work, workplace bullying has shifted into cyber bullying which is on the rise[3]. Workplace cyberbullying typically occurs through email, social media, internal communication platforms, voice calls, or text messages. Workplace cyberbullying is generally defined to cover “frequent interruptions during virtual meetings, unkind emails and repeated and excessive emails from managers. Some employees may “hide behind their screens” and not uphold the usual standards expected of them”. With this work arrangement, bullies can reach their victims at all times of the day due to the increased use of and reliance on technology to communicate. Natalia D’Souza, of Massey University in New Zealand, stated that “workplace cyberbullying can extend into targets’ home lives and act as a constant stressor, preventing them from unwinding and replenishing their coping resources.” Cyberbullying has the same effect on employees as in-person workplace bullying. The emotional turmoil to the victim and the risk to the organization remain the same.

Implications of Bullying

Workplace bullying (including cyberbullying) exists in organizations often between a superior and a subordinate and in less varying degrees between or amongst co-workers. Bullying can have serious effects on the physical, emotional, and mental health of an individual leading to anxiety, depression, and low self-worth. Bullying in the workplace is a systemic problem related to the actions and reactions of an organization. It also affects the individuals involved, as well as all those who witness the behavior. Whilst witnesses may be willing to actively help and support the employee being bullied, it is often very difficult for them to stand up against the bully. Often, they fear retaliation from the bully, as they fear losing their job or may believe that they do not have the authority to intervene. Additionally, persons who witness such bullying may either ignore the bullying or frame it as “normal behavior”, especially when it is recurrent within the organization without consequences or without the perpetrator being held accountable. These behaviours affect the productivity of the individual and since the achievement of the organization is dependent on the collective efforts of all its staff, poor performance of individual staff has a snowball adverse effect on the organization. Specifically, workplace bullying will result in poor work performance, valuable employees leaving the organization, and a hostile work environment.

In a survey conducted by the International Bar Association’s Legal Policy and Research Unit, which examined the nature, prevalence, and impact of bullying at the workplace, the responses showed that the failure to combat bullying has very serious consequences, including employees leaving the workplace. The ultimate effect of this is that it is likely to lead to a detrimental impact on the brand and reputation of the organization. Where there is no accountability for bullying in an organization, it can quickly become an entrenched problem. When this happens, there are implications not only for the employees but the organization too, as unhappy staff are not productive staff.

Regulatory Framework in Ghana

Ghanaian law provides that every worker has the right to work in a safe and healthy environment. Consequently, all employers have a responsibility to ensure that their employees work under satisfactory, safe, conducive, and healthy conditions by developing and implementing workplace practices that address inappropriate workplace behavior and respond to complaints effectively. The Constitution of the Republic of Ghana, 1992, (“Constitution”) and the Labour Act, 2003 (Act 651) both provide for the need for an employee to work in a safe, healthy, and conducive environment. Too often, however, the focus has been on physical safety in the work environment and not the behaviors of colleagues employees, or superiors that affect the mental health of workers. Whilst it can be argued that bullying detracts from the requirement of a safe working environment, it is overlooked and not expressly mentioned in the regulatory framework. The Constitution and Article 1 of the Universal Declaration of Human Rights (UDHR) also prohibit discrimination based on gender, race, color, sex, religion, political opinion, national extraction, economic status, or social origin. If such factors form the basis of bullying at the workplace, such acts will be in breach of the statutory provisions against discrimination.

What Employees Can Do When Bullied

Unfortunately, there is not a one-size-fits-all approach. In a publication titled “Dealing with Workplace Bullying- A Practical Guide for Employees” published by the Government of South Australia under an Interagency Roundtable on Workplace Bullying discussion, the following can be considered as remedial and coping mechanisms:

1. Employees who feel bullied must try to respond instead of reacting. Responding means being prepared for the outcome in advance and assessing the outcomes. Approach the bully and make it clear to the bully as soon as possible that the behavior is unacceptable.
2. Employees must familiarize themselves with their rights and know their workplace bullying policy and the reporting procedure and follow it if needed. These procedures are often in an Employee Manual or the Employment Contract.
3. Use more formal procedures to resolve the issue. By this approach, a formal investigation may be required if the informal procedures are not successful, or the situation is more serious.

If the situation cannot be resolved, consider the option of leaving the organization, as it is difficult to change a bully. Real behavior change is difficult, and it takes time. A bullied person would not have control over the bully’s willingness to accept that they have a problem and to work on it. Thus, the option available is to manage the situation. In the worst-case scenario, an employee who is bullied may decide to leave the job or be prepared for a long hard fight with the bully.

What Employers Can Do in Bullying Matters

Employers must take steps to maintain a work environment that is devoid of bullying. There must be active steps and measures to discourage bullying and to effectively deal with it quickly if it happens. Specifically, employers must:

1. Ensure current policies and procedures address issues related to employees respecting one another in the workplace (physical or remote).
2. Provide easy access to communication channels and support systems
3. Process complaints fairly by implementing a standard investigation process to evaluate reported incidents.

Just as employers have preventative measures to deal with employees’ physical health, there must be systems to deal with bullying which affects the mental health of employees.

Recommendations and Conclusions

Bullying is not acceptable under any circumstance as it has, in extreme cases, caused the deaths of bullied employees by suicide (as in the Brodie Panlock Case). Bullying, therefore, has no place in an organization that seeks to be successful. Consequently, workplace bullying requires greater focus and priority due to its adverse effect on the employee. For organizations to compete, the organization needs to adopt internal measures that allow for complaints and investigation of bullying behavior without victimization. Additionally, the organization must train human resource personnel and managers to spot red flags such as when a superior refuses to assign tasks to particular employees, consistently undermines the employee’s work, or socially excludes particular employees and addresses them effectively. Stricter punishment must apply to bullies, especially in cases of serious bullying such as persistent criticism. Having a workplace policy on bullying that does not allow interference with any investigation is a step to prevent workplace bullying and is likely to benefit organizations and the health of their employees. This will ultimately boost staff retention and more especially retain top talent of the organization.

There should be a national dialogue to have a robust regulatory framework that adequately caters to persons bullied at the workplace and makes the penalty punitive enough to serve as a deterrent to others, especially in instances where the bully intends their victim to experience “mental harm” which encompasses suicidal thoughts and self-harm.

Above all this, workers must always remember to take care of their own emotional and physical health first!

[1] Definition by the Canadian Centre for Occupational Health and Safety

[2] Crimes Act, 1958 (Act Number 6231/1958) Version 294, and (Section 21A (8), Amendment to the Victorian Crimes Act, 1958

[3] Gwen Moran, Why Remote Work Hasn’t Cut Down on Workplace Harassment, /www.fastcompany.com/90694967/why-remote-work-hasn’t-cut-down-on-workplace-harassment

Former United Nations Secretary-General Kofi Annan once famously said —” It is my aspiration that health finally will be seen not as a blessing to be wished for, but as a human right to be fought for.”  The right to health is now universally recognized as an integral part of human rights. In Kenya, the right to health has been categorized as a socioeconomic right that has its footing in Article 43 of the Constitution which provides that: “Every person has the right to the highest attainable standard of health, which includes the right to health care services…”

Health and medical care are intrinsically linked; although one never needs medical care when one is healthy, good health, once lost, is restored through good medical care. In what way therefore does the right to medical care play out in the employment context? Do employers have the duty to guarantee their employees the right to health as enshrined in the Constitution? Does the Employment Act cast any obligation upon employers to ensure (or try their best to ensure) the good health of their employees?

The Employment Act on the Right to Health

Part V of the Employment Act lists all the duties of employers concerning contracts of employment. Of particular note in the context of health is the employer’s duty to provide medical attention, prescribed under section 34 of the Employment Act. The duties are set out as follows:

(1) An employer shall ensure the provision sufficient and of proper medicine for his employees during illness and if possible, medical attendance during serious illness.

(2) An employer shall take all reasonable steps to ensure that he is notified of the illness of an employee as soon as reasonably practicable after the first occurrence of the illness.

(3) It shall be a defense to a prosecution for an offense under subsection (1) if the employer shows that he did not know that the employee was ill and that he took all reasonable steps to ensure that the illness was brought to his notice or that it would have been unreasonable, in all the circumstances of the case, to have required him to know that the employee was ill.

The Court’s interpretation of section 34 of the Employment Act

The Employment and Labour Relations Court is a specialist Court set up under Article 162 of the Constitution to hear and determine matters on employment and labor relations. While Parliament must enact and pass legislation, the duty of interpreting the law is vested in the Courts.

The Employment and Labour Relations Court was recently called upon to interpret section 34 of the Act in the case of Eddie Mutegi Njora v Mega Microfinance Co. Ltd [2015] eKLR.

Brief facts of the case

On 26th July 2008 the Claimant was employed as an Administrative Officer with the Respondent but a written contract of employment was only issued to him on 22nd February 2011 and was backdated to 26th July 2008. The Claimant was also simultaneously engaged with Mega Initiative Welfare Society which was a sister entity to the Respondent company. The terms of the Claimant’s contract were that he would be paid Kshs. 40,000.00 per month as his salary; be entitled to 30 days leave per year; and an in-patient medical cover. The contract of employment was not issued immediately as is required by law and as a result, the Claimant did not know his terms and conditions of work. On 27th June 2011 the respondent issued the Claimant with a letter notifying him that his contract of service would end on 31st July 2011. Upon termination of the contract, the Respondent filed suit seeking:-

1. a) Accrued leave;
2. b) 3 years’ service pay
3. c) Unpaid medical cover; and
4. e) Compensation for not being issued with an employment contract

Decision of the Court

Upon hearing the case, the Court pronounced itself as follows concerning the employer’s duty under section 34 of the Act:-Where an employer provides a medical cover, such a cover is to ensure the employer has taken a progressive step to ensure all employees are covered in terms of medical care and attention at all times. Where an employer has not provided such a medical cover, once an employee is unwell, such information should be brought to the attention of the employer as soon as it is reasonably practical.

The employer then has to address the matter as appropriate where such sickness has been brought to their attention. The evidence by the Claimant is that he remained without medical cover from March to July 2011 and therefore should be compensated for the lack of such medical cover.

The Claimant however failed to submit any evidence of sickness and need for medical attention that was brought to the attention of the Respondent and that the Respondent failed to address such a  situation or that the Claimant was forced to incur medical bills and the Respondent failed to reimburse. The respondent here has to ensure the provision sufficient and of proper medicine for his employees during illness and if possible, medical attendance during serious illness as under section 34(1) of the Employment Act.

 Conclusion

The Court, in its application of section 34 of the Employment Act, adopted a literal approach and did not cast any greater burden upon employers to provide medical care for employees than what the Act expressly provides for.

There was no suggestion by the Court that an employer must obtain medical cover or insurance for employees but the Court did acknowledge that an employer that elects to do so (provide medical cover) is taking progressive steps towards ensuring its employees have the necessary medical care and attention at all times.

The Court however did confirm that the employer must provide proper medicine to its employees during illness, and medical attention during serious illness. Whilst the Court found that the employer has to know of any illness affecting an employee, there is an equal duty owed by employees to inform the employer of the same.

Background When an employment contract is terminated, it is common practice for employers to issue their employees with a clearance form that contains a clause that purports to discharge the employer “from all further or future claims whatsoever” upon payment of final terminal dues to the employee. Such clauses constitute what is referred to as a discharge agreement.

The discharge agreement is essentially a contract between an employer and an employee that crystalizes the rights of each party at the date of the termination of employment. Discharge agreements ordinarily contain an undertaking by the employer to make payment in full and final settlement of all salary and benefits payable to the disengaged employee in consideration of the employee discharging the employer from any further liability arising from the employment relationship.

 

The question that has innumerably arisen in ensuing litigation is whether discharge agreements are effectively binding on the parties, and whether the Courts are therefore obliged to uphold them. Put differently, whether the discharge agreements have the effect of barring further claims from being made by either of the parties.

The Employment and Labour Relations Court (ELRC) has laid down a general presumption that there is no equality of bargaining power in an employment relationship, with the employer holding the upper hand. Consequently, the ELRC has tended to water down the binding nature of discharge agreements. This general presumption flows from the fact that an employee, at the time of termination, would be desperate to receive payment of his terminal dues and would therefore sign the discharge forms with an element of economic duress at play, and without giving much thought to the implications of the discharge agreement.

Consequently, the ELRC’s general position has been that discharge clauses contained in termination clearance forms do not discharge the parties from further claims or statutory obligations. This article discusses and highlights the apparent paradigm shift from this erstwhile position held by the ELRC by considering emerging case law emanating from the Court of Appeal and a recent landmark decision by the ELRC that sets out the principles to consider when dealing with the legal effect of discharge agreements.

 

Paradigm Shift

In the case of Thomas De La Rue (K) Ltd. v David Opondo Omutelema (2013) eKLR, the Respondent (an employee) had signed a clearance form which was duly witnessed, in which he confirmed having received from the Appellant (the employer) “in full and final settlement of all salary and benefits payable towards my redundancy package and all other claims arising from my employment with the company except for provident fund.” The Court of Appeal, whilst observing that the ELRC gave the discharge agreement short shrift, agreed with the ELRC that a discharge agreement cannot absolve an employer from statutory obligations, and that it cannot preclude the ELRC from enquiring into the fairness of a termination.

However, the Court of Appeal emphasized that each case turns on its own peculiar facts and that the trial Court should make a determination whether the discharge agreement was freely and willingly executed when the employee was seized of all the relevant information and knowledge.

The Court of Appeal further found that the suggestion that the Courts should treat all cases involving discharge agreements in the same way was erroneous, and clarified that the ELRC should not adopt a general presumption and apply it rigidly in each and every case without considering whether the presumption has been rebutted or not i.e., whether evidence had been led to support or disprove the validity of a discharge agreement in the circumstances of the case.

It therefore follows that the answer to the question as to whether discharge agreements should be a bar to further claims turns on the facts of each case. In the case of Coastal Bottlers Ltd. v Kimathi Mithika (2018) eKLR, the Court of Appeal was once again called upon to consider the validity of a settlement agreement which read in part:

“I,…certify having received the sum of Kenya Shillings One Million Five Hundred Sixteen Thousand, Two Hundred and Eighty-One (Kshs. 1,516,281) being my full and final payment due to me from Coastal Bottlers Limited as follows…I confirm that, I have no further claim against the Company whatsoever.” The Court of Appeal held that the parties had agreed that payment of the amount stated in the settlement agreement would not only absolve the employer from any further claims under the contract of employment, but also in relation to the employee’s termination. Consequently, the agreement was a binding contract between the parties as the employee neither denied signing the same nor was there any evidence of misrepresentation, duress or incapacity on the employee’s part at the time of executing the settlement agreement. In upholding the binding nature of the discharge agreement in the Coastal Bottlers Ltd. case, the Court of Appeal upheld the finding in Trinity Prime Investment Ltd. v Lion of Kenya Insurance Company (2015) eKLR, that the execution of a discharge voucher constituted a complete and binding contract. Accordingly, all the ELRC is required to do is to give effect to the intention of the parties as discerned from the discharge agreement, upholding the notion that the function of the Court is to enforce and give effect to the intention of the parties as expressed in their agreement as enunciated by Sir Charles Newbold P., in Damondar Jihabhai & Co Ltd. & Anor v Eustace Sisal Estates Ltd. (1967) EA 153

Guidelines What then should one look out for when entering into a discharge agreement upon termination of an employment relationship? In the recently decided case of Pauline Waigumo v Diamond Trust Bank Ltd. (2021) eKLR, the ELRC, in declining to reopen the question of monetary compensation between parties who had signed a discharge agreement, laid out general guidelines in dealing with the effect of discharge agreements on further claims by concerned parties through future litigation, as follows:

• As a general principle, a pre-trial settlement operates as a contract between the parties
• It is to be considered as generally binding on the parties unless it is assailed on the usual grounds that will vitiate a contract
• Such settlements may, albeit not always, constitute a full settlement of the issues under consideration with the consequence that parties to them may not pursue further claims on the same subject either in Court or otherwise
• There is no general principle that such settlements will inevitably discharge an employer from his/her statutory obligations under the contract of service
• In order to determine whether the settlement operates as a bar to further claims by the parties to it, a trial Court or other arbiter must consider: the import of the settlement; whether the parties executed the agreement freely; and whether they had relevant information and knowledge regarding the settlement
• The mere existence of a pretrial settlement should not be construed as taking away the Court’s jurisdiction to inquire into the lawfulness of a termination of a contract of service

Consequently, a Court faced with a question on the validity of a discharge agreement ought to address its mind firstly, to the import of such an agreement and secondly, to whether the same was freely and voluntarily executed by the parties.

 Upshot

Discharge agreements are intended to determine with finality the rights of the parties at the time of termination of employment. The common grain flowing from the foregoing analysis is that discharge agreements are binding on parties if they are entered into freely and willingly, and in the absence of any of the conditions that would warrant the setting aside of a contract such as coercion, fraud, mistake, misrepresentation, or incapacity. It cannot be gainsaid that there is an apparent shift by the Courts in dealing with the effect of discharge agreements on further claims by the affected parties through litigation. Whereas it can be said that Courts have breathed life into discharge agreements, it must be noted that these agreements do not negate an employee’s right to institute a claim for unfair or unlawful termination – with each case turning on its own facts, including the validity (or lack thereof) of the discharge agreement. Ultimately, employers are still duty-bound to ensure strict compliance with the provisions of the Employment Act, 2007 during termination of employment.