Written by Ama Koguah Obese-Jecty

The writer is a lawyer and an Associate of Koranteng & Koranteng Legal Advisors and focuses on intellectual property, technology and commercial law

NFTs

Fungible refers to anything that can be replaced by a similar item or that is mutually interchangeable with something else. For example, money is a fungible asset. One dollar can be easily replaced with another and the value remains the same.

Non–Fungible, therefore, means a thing that is unique, which cannot be interchanged or replaced with something else. Thus, Non-Fungible Tokens (NFTs) are a one-of-a-kind digital asset, that can be bought and sold like any other piece of property. They can take the form of anything digital including music, drawings, animated GIFS etc. and can also represent real world physical assets.

NFTs allow you to keep track of who owns what by storing these records on a shared ledger known as the blockchain. By allowing you to verify who owns them, NFTs can be thought of as certificates of ownership of both digital and real assets such as the deed to a car, legal documents or the tickets to an event.

 

When someone wants to create an NFT, they ‘mint’ it on a blockchain, which allows all other people on the blockchain network to recognize its creation and view its ownership. Most NFTs are part of the Ethereum cryptocurrency blockchain but other blockchains can implement their own versions of NFTs. The use of blockchain technology is at the heart of NFTs many advantages.

 

Blockchain Based Advantages

 

The advantages of NFT’s include increased transparency and security. It is nearly impossible to change, hack or fake records of transactions involving NFTs because of the use of Majority Confirmation, the Hash and the Proof of Work mechanism, among other things.

 

Majority Confirmation refers to the fact that a blockchain is a distributed ledger that is completely open to anyone. The ledger of transactions is duplicated and distributed across the thousands of computers on the network. A new block/ record cannot be created until every node has checked the validity of the transaction and the majority have declared it valid. Any change/ tampering with the contents of the block can be detected and blocks that have been tampered with will be rejected by the computers on the network.

 

Each block contains data, a Hash and the Hash of a previous block. The Hash is unique, acting as a “fingerprint” that identifies a block and all of its content. Hashes therefore help you detect any change in a block on the chain because changing something inside the block will cause its Hash to change. Moreover, changing a single block will make all the following blocks invalid because the Hash of the preceding block will be ‘wrong’.

 

In addition, a ‘Proof of Work Mechanism’, usually involving computers solving complex math puzzles, increases the difficulty level of generating new Hashes and slows down the creation of new blocks such that one is produced about every ten minutes. This makes it even harder to tamper with the block, because the proof of work will have to be recalculated not only for that block but for all the following blocks in the chain as well.

The moment one block is changed therefore, it becomes apparent that it has been tampered with. Hackers wanting to tamper with the blockchain system would therefore have to change every block on the chain across all the distributed chains, redo the proof of work, and take control of more than 50% of the peer to peer network before the tampered block will be accepted. This is almost impossible to do.

Its Usage

Artwork

Currently, NFTs are being used to buy, sell and trade digital art, forming a multi-million-dollar industry that only keeps growing. Perhaps you have heard of the iconic GIF of a Nyan cat being sold for $580,000 or the 1st tweet by Twitter’s founder Jack Dorsey being sold for around $3,000,000.

There are now a number of digital marketplaces including Zora, SuperRare, and Nifty Gateway — where collectors can buy and sell digital works. The platform, NBA Topshot, allows users to buy and trade NFTs in the form of videoclip highlights of basketball games. Further, auction houses such as Christie’s, which have in the past sold iconic portraits such as the portrait of Shakespeare and the last known painting of Leonardo di Caprio, are auctioning NFTs. On March 11 2021 Mike Winkelmann, an artist known as Beeple, had a picture (composed of 5000 digital pieces) auctioned at Christie’s for $69 million (Everyday’s the First 5000 days.) In addition, Beeple’s 10 second video “Cross Roads” originally sold for $67,000 in October 2020 and resold for $6.6million in February 2021.

NFTs could have many other uses in mainstream commerce.

Global Trade

In global trade, where the consignee must present a bill of lading to the shipper, indicating that the consignee does in fact own the goods and the shipper can transfer them into his possession, “Tokenisation” of the bill of lading would bring speed and efficiency to the process by allowing that same ownership to be verified in a decentralised manner and avoid delays caused by multiple actors and slow mail services. It would also help to reduce the cost of delivery and to avoid demurrage charges from late pick-up of goods at the port.

Oumi Blockchain Technology outlined its plans to apply NFTs to the digitisation of invoices for functions such as factoring, which involves a business selling its accounts receivable to a third party at a discount, to obtain immediate money for amounts due on accounts receivables or business invoices.

Real Estate

Real estate agents can also employ NFTs by issuing listings as NFTs with fractional ownership of assets. This allows multiple buyers to have a stake in a single property according to specific conditions.

Collateral

With valuable assets like cars and property representable on Ethereum, you can use NFTs as collateral in decentralized loans. This is particularly helpful if you are not cash or crypto-rich but own physical items of value.

Further Advantages

Generally, “tokenising” trade documents brings to the table a single source of truth, multiparty automation, fraud reduction, greater transparency and trust – as well as removing cumbersome paper-based processes from the equation.

In addition, the fact that NFTs are a distributed ledger means there is no need for a central authority and that avoids the weaknesses that come with it, including the risk of bribes and corruption.

The blockchain also helps prove ownership and authenticity of the NFT by providing a full ownership history from when the NFT was minted. The authenticity of the NFT is secured on the blockchain and allows one to surpass less efficient, paper-intensive authentication methods.

NFTs also have the advantage of easy transferability from one person to another, worldwide, helping to ensure a higher pool of potential buyers. The fact that the code and meta data of an NFT cannot be changed lends it permanence and immutability.

The ability of NFTs to generate revenue or be exchanged for real world assets also presents a significant advantage.

NFTs that represent physical assets can help make those physical assets more accessible to a wider audience. With NFTs, physical assets can be easily traded on digital marketplaces, which can increase their exposure and make them more attractive to buyers. The security of transactions on the blockchain can also help bring added confidence to ownership transfers as transactions on the blockchain are transparent and verifiable.

In addition, NFTs employ smart contracts, a digital code for the transferring of assets from one person to another that exists on the blockchain. Smart contracts are automated contracts; when defined pre-conditions are met, the contract moves onto the next step. By the time all payments are made, property automatically transfers without the need for an intermediary.

Moreover, within the art industry, NFTs allow artists to directly profit from all sales of the NFT, taking into consideration even the appreciating value of the NFT. This means that a piece of art that originally sold for $10 before rocketing to $1million for the next sale would make its creator money based on its new value, rather than just the original $10. NFT royalty payments are both perpetual and automatic, so creators can just sit back and earn royalties as their work is sold from person to person.

Though NFTs have many advantages, there are also some disadvantages to their use that should be kept in mind.

Disadvantages

There is a concern that NFTs are not eco-friendly because the blockchain that NFTs are created on consumes huge amounts of energy. For example, each NFT transaction on the Ethereum network consumes the equivalent of the daily energy used by two American households and millions of transactions take place each year.

Finding solutions for the proof of work mechanism which provides security for most of today’s NFT networks requires a lot of computational power which in turn drives electricity consumption. It should be noted however that Ethereum has plans to change its proof-of-work algorithm to an energy efficient proof-of-stake algorithm called Casper. The Casper Protocol’s implementation will upgrade Ethereum to version 2.0 (aka ETH 2.0), making Ethereum faster, more efficient and more scalable.

Richard Crook, director of financial services software company LAB577 and former head of emerging technology at the Royal Bank of Scotland (RBS), noted in 2021 that there are many better ways [than proof of work] of ordering transactions. “One of the ways we do that is by creating trusted nodes on a network to validate them. A good example of that is Corda. There are already technology choices out there that you could use to do NFTs that will not result in this huge electricity footprint. I don’t doubt that if you issue an NFT on Ethereum that there is an outsized environmental impact, however that is not where we are going to end up over five or 10 years.”

Amy Fisher, former  Head of Business Development at R3, the blockchain firm behind Corda, explained that Corda’s peer-to-peer architecture means it only involves parties to the transaction, as opposed to the entire network, as is the case with public blockchains like Ethereum. “This avoids the high time and computing resources that public blockchain consensus requires, which serves as a serious impediment to scalability, not to mention wasted resources,” she said.

Another disadvantage to be noted is that NFT trading requires a digital wallet that can hold them and these wallets can be hacked, so it is important to ensure there are plenty of defence mechanisms in place.

Despite these disadvantages, NFTs have become a worldwide phenomenon whose popularity continues to grow as our understanding of them increases.

Richard Crook has stated, “Everything from the provenance of goods, fraud prevention and even debt management can be streamlined and verified using blockchain-based NFTs.”

A look towards the future

What would you say if I told you that I had a pitch for a US$40 billion industry right here in Ghana?

What if I also told you that this industry is not oil and gas or agriculture, nor technology or finance? None of that.

Well, you would say I am crazy. Who wouldn’t? Those are the industries we know which make that kind of money. Where else could that amount of revenue be hiding?

Believe it or not, that is the amount of revenue Hollywood is worth. The Hollywood film industry received earnings of up to US$5.99billion in 2022. The U.S. film industry has a total of 2.5 million employees. If Hollywood was a country, it would have the 12th highest GDP in the world – ahead of countries like Australia and Spain.

This is not an isolated phenomenon. There is The Indian movie industry, commonly referred to as Bollywood (Hindu speaking side of the country) and its companion Tollywood (from the Telugu-speaking region of the country) together worth US$2 billion, and the fastest-rising movie industry in the world, expected to reach US$2.5 billion by 2025.  There is also the Chinese movie industry, which generated revenue of US$17.7 billion in 2022, up from US$10 billion in 2021, and the South Korean film and television industry, which generated US$1.3 billion and US$6.5 billion in 2021, respectively.

The fact of the world is that people will pay a great price to get entertainment in whatever form they can get it, and will craft their entire personalities and identities around the pop culture that they consume, in the form of clothing, accessories, gaming, social media consumption habits, etc.; and this will always be a huge money maker, particularly now in a rising global middle-class economy.

But you probably already knew that. Here is one story you probably did not  know; the story of how a state went from a middling player on the American entertainment industry scene to the leading state for film and television production + the state of California. The total value of production spending in Georgia has increased by over 400percent from 2007 through 2010, with total annual production spending in Georgia exceeding US$600 million in 2010. An absolute juggernaut.

Georgia is now termed the “second Hollywood” by many industry experts. And they did it with just 17 pieces of paper called the Georgia Entertainment Industry Investment Act. GA Code Title 48 – 7 – 40.26 (2019)

But before that, we need to talk about Ghana’s TV and movie and TV industry.

Trouble Brewed in a Ghanaian Pot

Film-making is a tough business even in advanced economies. It requires a lot of capital yet comes with significant uncertainty in terms of profitability even among the best producers. In a developing industry like that of Ghana, those challenges are exacerbated tenfold, fraught with challenges of inadequate capital, copyright infringement, piracy, and the ability to make profits is even dimmer.

Data and statistics on the financial state of the Ghanaian movie industry are hard to come by, which in itself is rather telling of the state of the matter.  But accounts of industry veterans and aficionados give us a glimpse into the status quo.

Some actors in Ghana bemoan the unprofessional attitude in most productions, with many of its financiers treating it as a hobby rather than a business. The lack of enforcement of copyright and intellectual property laws to protect content from digital theft further compounds the problem, as well as a lack of realistic and pragmatic industry structures.

This is a familiar tale told by many insiders and outsiders observing the industry.

On the production side of things, funding and distribution channels still pose a huge challenge, as echoed by director Peter Sedufia in an interview with Y FM;

“Now, if you take a lot of Ghanaian films, we’re not at the stage we want to be where we can say that we’re a world-known film-producing country. It takes time so we cannot throw out the fact that not all things are of the standard. We can also not throw out the fact that some films made in Ghana are of the international standard because people are making good films. The only reason why a lot of people are not making the kind of films they want to make is that they do not have the funds for it… when you get the funding and you make the film, you need to be able to sell it to make the money back and even with some profit to continue making films”.

Popular Ghanaian movie actor and leader of the Kumawood Actors & Actress Association, Bill Asamoah in an interview with Delay, also opined on this, indicating that the streaming marketplace has changed consumer habits to smartphones and digital platforms and decimated the CD and home video market. The local industry did not adapt nearly fast enough and is still reeling from the shock.

The casual Ghanaian observer would scarcely disagree.

The case study of Georgia

Just as the state of Georgia transformed its industry to be on par with Hollywood, Ghana can spark a renaissance in the cinematic arts with one simple legislative move. Not only can we do it too, but we also stand uniquely positioned to benefit from this with relatively low risk and low capital investment required from the state.

The Georgia’s Entertainment Industry Investment Act, enacted in 2008 by the Georgia legislature unleashed a wave of investment, making the state a hotbed for film and television productions. This forward-thinking legislation provides an array of attractive incentives for production companies, making it a premier destination for filmmakers.

The key factor lies in the generous tax credits offered by the act. Production companies can enjoy substantial tax incentives, rebates, and exemptions, creating a favorable business environment and significantly reducing the financial burden of shooting in the state.

Key Features of the Georgia Entertainment Industry Investment Act

Application For The 30percent Tax Credit:  The applicant (the production company), submits an application package to the Georgia Department for Economic Development (GDEcD) for certification of the Project when the project starts preproduction in Georgia. The application package is submitted electronically when complete to taxcredit@georgia.org. The base application qualifies a production for a 20percent tax credit, with additional requirements for an added 10percent.

Eligibility and Submission: For features, television movies, pilots, series, TV specials, and music videos, the application package consists of proof of funding and script.

For commercials, the application package consists of the 20percent tax credit application, proof of funding, and the script/creative and, if applicable, storyboards.

For feature and television projects, applications must not be submitted earlier than 90 days before the start of Georgia principal photography (the phase of film production in which the bulk of filming takes place) but must be submitted before principal photography concludes. Commercial and music video project applications must not be submitted earlier than 30 days before the start of principal photography but must be submitted before principal photography wraps. Typically, the application package is submitted when opening the Georgia production office, which signals the start of preproduction.

For the additional 10percent Georgia Entertainment Promotion (GEP) Uplift tax credit, feature films and television projects must submit the script along with a completed GEP Uplift application to the Georgia Department for Economic Development (GDEcD). Music videos must submit the song lyrics and storyboards, along with a completed GEP Uplift application. TV commercials do not qualify for the GEP Uplift. This means including the logo of the GEP Uplift program in your content (usually in the credits).

If a production company cannot or does not want to include the logo in their Project, they can apply for the 20percent tax credit only, or instead of the inclusion of the GEP Uplift logo, the production company may offer alternative marketing promotion opportunities acceptable to GDEcD. The decision whether to include the GEP Logo or pursue the Alternative Marketing Opportunity must be made at the time the Project applies to pursue the GEP Tax Credit, and the decision is final.

The 10percent GEP Uplift will not be awarded until proof of multimarket distribution is provided within 5 years of awarding the base (20percent) Tax Credit Certification Letter. Before submitting the Distribution form, verification is provided to confirm that the GEP logo has been included in the Project as legislated or Alternative Marketing Opportunities have been met. Additionally, all supporting materials (crew, vendor, and location lists, signed call sheet from the first day of principal photography, final shooting schedule, promotional photographs, and a completed form detailing expenditures  has been provided to the Georgia Film Office.

What documents can be provided for proof of funding?

Proof of Funding: The GDEcD will require proof of funding that the Project has assets that equal or exceed 75percent of the total budgeted cost of the Project at the time the applicant applies for certification. These assets can be owned by the applicant, provided by a third party under a financing or funding agreement, or a combination of the two. Such proof may include payroll statements, bank statements, and financing or funding agreements, including in-studio financing letters or agreements.

An application must be submitted for each specific Project for each year that credits will be claimed.

A “Project” is defined as live-action or animated and maybe a single televised commercial, a music video, a studio feature film, an indie feature film, a TV movie, a TV pilot or episode, TV Miniseries or an entire TV series season produced in Georgia.

The film credit may be assigned to a subsidiary. If the production company assigns the credit to an affiliated entity, the affiliated entity can only utilize the credit against its income tax liability; the affiliated entity cannot use the credit against withholding tax. The affiliated entity cannot sell the credit.

Expenditures made outside the State of Georgia do not qualify for the tax credit. Rentals and purchases that count towards the credit are made with companies that meet the Georgia vendor rule requirement. This rule defines what a local vendor is for purposes of claiming a tax credit under the policy.

Wages Paid to Individuals Working in Georgia: Wages paid by an out-of-state payroll company on behalf of the production company to an individual working in Georgia on a certified production qualify for tax credits, as long as they have for the time worked in Georgia.

“Loan Out” Employees: Directors, actors, or other production personnel employed on a production as a “loan out” can be eligible for tax credits. However, their salaries must be reported for withholding at the Georgia Tax Center.

Hotel and meal per diems incurred in Georgia are considered qualified expenditures for the tax credit. Union pension and welfare payments are also qualified expenditures if paid to the union as part of pension, health, and welfare. Health insurance premiums qualify if paid to the union. However, all qualified expenditures must be attributed to Georgia.

Payroll Processing Fees: Payroll processing fees can be considered qualified expenditures if the payroll company is a Georgia vendor and the services are rendered in Georgia.

To qualify as a Georgia vendor to claim a tax credit on expenses, a person or business must meet the following criteria:

1. Sales or Rental of Goods/Services: The individual or business must sell or rent a type of property or provide a service that is not performed at the filming site, which is directly related to the production expenditure, as part of their regular business activities. They should have an inventory of the same type of goods in Georgia.
2. Physical Location in Georgia: The vendor must have a physical location in Georgia where at least one individual works regularly. This includes home-based businesses that meet the requirements of a Georgia vendor. Merely registering with the Georgia Secretary of State or appointing a registered agent in Georgia does not establish a physical location.
3. Registration with the Department of Revenue: The vendor should be registered with the Georgia Department of Revenue for the collection of sales and use tax.
4. Local Business License: The vendor must possess a local Georgia business license. The production company is obligated to obtain a copy of the license from any Georgia vendor if the total amount of purchases exceeds US$10,000 for that vendor during the taxable year. The certificate for the Project is issued by the Department of Economic Development.
5. On-Set Services: For vendors providing services on the set, they must be identified in the daily production reports.

It is important to note that vendors acting solely as conduits, facilitating purchases and rentals that would not otherwise qualify, are not considered Georgia vendors for those specific transactions. Tax credits are not claimed by the production company until the tax return is filed for the tax year in which the expenditures are incurred, and the US$500,000 minimum spend is met. If an audit is mandated on the Project the audit must be completed, and the tax credits certified to claim or transfer the credits.

As of 2023, all Projects will be required to undergo an independent audit.

Transferability of Tax Credits: Credits can be transferred to any Georgia taxpayer, whether an individual or a corporation. This flexibility allows credits to be utilized by entities that may not have been directly involved in the production process.

Carry Forward Period: Unused film tax credits, issued their final certification, can be carried forward for up to three years from the close of the taxable year. This provision allows production companies and transferees to utilize credits over an extended period.

The legacy of Georgia’s tax incentive programme on its creator economy

The Georgia Entertainment Industry Investment Act (tax credit) has created significant economic impact, adding over US$800 million annually to the State Gross Product and supporting over 11,000 full-time equivalent jobs. Local businesses and communities have reaped the rewards of this booming industry. From small-town eateries and cozy bed-and-breakfasts to the bustling production studios and post-production facilities, the surge in film and television projects has breathed new life into Georgia’s economy. Job creation has skyrocketed, offering employment opportunities to thousands of Georgians, from aspiring actors to skilled technicians, further strengthening the state’s workforce.

In 2017, Georgia-lensed feature film and television productions generated an economic impact of US$9.5 billion during FY 2017. The 320-feature film and television productions shot in Georgia represent US$2.7 billion in direct spending in the state.

Since the introduction of the film tax credit in 2005, Georgia has become a leading state for film and television production. The total value of production spending in Georgia has increased by over 400percent from 2007 through 2010, with total annual production spending in Georgia exceeding US$600 million in 2010.

The film tax credit has been credited with attracting major film and television productions to Georgia, including The Hunger Games, The Walking Dead, and Stranger Things. The tax credit has also helped to create jobs and stimulate the economy in Georgia.

In 2014, the Motion Picture Association of America (MPAA) estimated that the film and television industry in Georgia supported over 25,000 jobs and generated US$9.5 billion in economic activity. The MPAA also estimated that the film and television industry in Georgia paid US$1.2 billion in state and local taxes.

Moreover, the act has paved the way for homegrown talent to flourish. Georgia’s vibrant creative community has blossomed, with local filmmakers, actors, and musicians finding unprecedented opportunities to showcase their skills and captivate audiences worldwide.

Beyond economic and cultural impacts, the Georgia Entertainment Industry Investment Act has elevated Georgia’s global profile. Countless iconic films and popular television series have been filmed against the backdrop of Georgia’s stunning landscapes, showcasing the state’s diverse beauty to audiences around the world. This exposure has not only attracted tourists and visitors but has also positioned Georgia as a premier destination for both leisure and business travel.

Why Ghana is primed for a law like this

In recent years, Africa has emerged as the next frontier for investments in the entertainment industry. With its rich cultural heritage, diverse landscapes, and talented pool of actors and filmmakers, the African continent offers immense potential for growth and innovation in cinema. One notable success story is the impact of movies like ‘Black Panther’ and ‘The Woman King,’ which have showcased Africa’s storytelling prowess and captivated global audiences. To harness this momentum and further propel the Ghanaian movie industry, implementing a tax credit legislation similar to the Georgia Entertainment Industry Investment Act could be a game-changer.

Ghana is burgeoning with factors that not only will guarantee a bill like this, if passed, will work, but will also exceed any expected outcomes by an astronomical degree.

The English Advantage – The fact that the dominant producer of popular culture (the United States) is English-speaking gives us the leverage of offering the ability to travel, conduct business, and use the human resources of the country in production (actors and crew) without the hassle of the language barrier. It brings some stability, ease, and universality to doing business here.

Diverse Climate – Georgia did not become the prime filming location of the modern age for just the legislation alone. The state has a multi-variance of landscapes for making every flavour and genre of film set in any period and location; mountains in the northern part of the state, where the Appalachian range traverses the state with rolling hills and charming small towns.  Atlanta, the state’s capital and largest city, offers a bustling metropolitan atmosphere with its modern skyline and iconic landmarks. The coastal plains in the southern part of Georgia feature marshes, while the Piedmont region offers rolling plains and farmlands. The Chattahoochee-Oconee National Forests span over 866,000 acres, offering a diverse range of forested areas, and places like Providence Canyon State Park offer a desert landscape.

Similarly, Ghana has a variety of exquisite and diverse ecosystems for filming – marshlands in the south, savanna in the north, cityscapes in the south, thick tropical forest in the west, beautiful beaches along the coastline, grassland and plains for miles, and rolling hills at high altitude in the middle of the country.

Cheap Labor – Ghana has the competitive advantage of offering human resources at a more competitive price than the competition on the market, which forms a substantial part of filming expenditure. This can radically drive down the cost of production for film studios. Profit is the most significant consideration perhaps above all else in a studio’s decision to greenlight the Project, and Ghana can outcompete other countries in labor by a wide margin.

Favourable Exchange Rate – Greater purchasing power is available to investors, as their dollar can offer far more leverage here than in most locations in the West, which makes it monetarily sensible to spend the budget here, where it can do more for less.

These factors have been present for a while, but as with Georgia before 2008, it requires a legislative incentive to tip the scales. Even small movies are million-dollar investments and large movies are multi-million-dollar transactions. Risk keeps the industry in a loop of following precedent. By offering the tax credit, studio executives can make a convincing pitch for why the country offers the best competitive advantage on a pure common-sense basis, which will trigger a change in practice over the course of years and decades, just as with the case of Georgia.

There exists in the status quo a number of tax incentive legislations, indicative of the fact that this is not an investment mechanism that is alien to our corner of the world. Residents in Ghana are eligible for a credit for foreign income tax paid on their foreign taxable income under the Income Tax Act, 2015 (Act 896). The credit cannot exceed the average rate of Ghanaian income tax for a year.

The Ghana Investments Promotion Centre Act, 2013 (Act 865) also provides incentives to encourage strategic investments in various sectors, including agriculture, manufacturing, construction, mining, and tourism. Incentives include exemptions from customs duties, reduced corporate income tax rates, favorable investment and capital allowances, and guarantees against expropriation. Venture capital tax incentives in Ghana also include relief from stamp duty on equity share subscriptions, a reduced tax rate of 1percent on interest and dividends from venture capital investments for the first ten years, and the ability to carry forward losses for five years. Companies registered as free zone developers/enterprises in Ghana also enjoy a corporate tax holiday for the first ten years of operation under the Free Zones Act, 1995 (Act 504). After the tax holiday, the corporate income tax rates are 15percent for export sales and 25percent for sales in the domestic market.

How a Bill like the GEIIA will fix our movie industry

Funding – Movies and television are by far the most cost-intensive medium to produce content with. This is because it involves a vast array of logistics like locations, sound equipment, video, editing, cinematography, visual effects, hair and make-up, costuming, scriptwriters, etc. This makes the bar to entry extremely high, and this can be alleviated with an influx of foreign direct investment in the form of studios looking to cut the cost of their productions down.

By creating a tax incentive for investors to come film in Ghana and establish studios here, this creates the opportunity for young Ghanaian filmmakers, writers, editors, cinematographers, hair and make-up artists, set designers (Including handymen like welders, electricians, carpenters etc.) to get a stream of income and potentially garner enough skills and notoriety by way of their work to be put in charge of their projects/ departments.

Technical Knowhow – A potential increase in the number of film studios and film projects being conducted in Ghana could necessitate the need for these investors to take on local labour in the filming and production of these various projects because financially, it is simply cheaper than flying in the  entire secondary crew from California or New York. This would open opportunities for Ghanaians in the creative arts industry to be taught new skills, which will transform into leverage they can use to start their businesses here or rise up in ranks in these film studios. It can also create a talent pool for other film studios in the future looking to find cheap labour.

Employment – It will serve as a source of employment for millions of Ghanaians not only in direct jobs from production but also in ancillary jobs like cleaners, security and administrators, advertisers, etc.

Publicity – It will raise the profile of the country on the international stage as a destination for tourism, in keeping with the government’s efforts to market Ghana as a travel destination with the ‘Year of Return’ trend, where Ghana witnessed a remarkable surge in tourism, attracting a significant influx of African American visitors and global attention. Designed to commemorate the 400th anniversary of the arrival of enslaved Africans in America, the Year of Return initiative called upon the African diaspora to reconnect with their roots and explore the vibrant culture and heritage of Ghana. The impact was profound, with statistics revealing a substantial increase in African American visitors to the country.

In fact, during the Year of Return, Ghana welcomed over 1 million visitors, many of whom were prominent celebrities and stars seeking to experience the warmth and hospitality of the Ghanaian people. This momentum has continued to thrive, cementing Ghana’s position as a popular December tourism destination, with the country hosting high-profile events such as the Global Citizen concert.

Notable personalities such as Dave Chappelle, Kendrick Lamar and Idris Elba have graced Ghana’s shores, contributing to the nation’s rising profile in the international entertainment scene. This is a snapshot of the extraordinary benefits in tourism we stand to reap from measures such as a film tax credit.

Infrastructure – A lot of facilities go into filming major motion pictures, which often demands the construction of large film sets with multiple filming facilities or ‘sound stages’ where movies can be mass produced for cheaper, for instance, by cutting down the cost of renting locations or having filming delayed by bad weather. This leads to these entertainment companies having to dig down roots in that particular country or city, which becomes a permanent fixture for use in the far future.

For example, Florida is inextricably linked to the operation of the Disney company because Disneyland is in Orlando, which is a renewable source of employment for the people there, as well as benefitting from corporate social responsibility projects like the Disney Dreamers Academy, a scholarship program.

Another example is one from Africa. During the filming of Star Wars, the desert in Tunisia was used as the set of the alien planet Tatooine. The alien habitation set was left there after filming, and to date, serves as a tourist attraction for Star Wars fans.

Quality Ghanaian Content – This policy would also, in the long term improve Ghanaian content as a whole. Studios do not  only get money from producing their intellectual property,  but they also monetize their infrastructure like cameras and sets by doing rental services for anyone who wants to take advantage of their services. This would translate into more quality productions from the Ghanaian industry. This measure would also draw industry talent to Ghana, which would lead to more quality human resource availability.

Boost the Local Economy – This policy would also boost the local economy. Investors cannot just travel to the country in a vacuum. They will need places to sleep, eat, and do laundry. They will need transport, guides and shopping for various needs. The nature of film is inherently a team project. The minimum number of crew for a low-budget movie is 10 to 20 people. For a high-budget movie, which is around 100 – 200 people. That is a lot of ancillary business being brought to the economy, even for just one project. This also comes with the benefit of helping to tamp down currency depreciation effects, as the supply of the dollar in the country is higher than it ordinarily would have been, all year round.

High Return for a Low Cash Investment – Just like the ‘Year of Return’ marketing model, which was a relatively low-cash investment, high-reward venture, a policy like this provides extraordinary leverage for a little amount of effort invested, and  there is no ‘money lost’ because there is little to no GDP coming in from the Ghanaian movie industry in the first place. This is a proposition with no downside, and maximum upside, making it a very lucrative win for any government to execute.

Furthermore, the government could adopt a policy of re-evaluating the tax exemption every 5 to 10 years to expand revenue if the occasion demands it. This strategic approach takes into account the commitment and utilization of infrastructure, significantly reducing the likelihood of losing investor retention. Moreover, implementing such a policy would enable the government to generate revenue by taxing these corporations, ensuring that the country’s resources and facilities are enjoyed and utilized effectively.

This is beneficial to the film industry in Ghana because it serves as a source of funding to fund more film projects of more complexity and scale. Of all the mediums of art, film, and television poses perhaps the greatest barrier to entry, requiring high technical expertise and finance. Many talented professionals are deterred from aiming for a career and this causes a burden on white-collar sectors of the economy in the form of over-production of labour to saturated industries or causes brain drain as these gifted individuals seek a life overseas.

Potential Concerns/Criticisms

Loss of Tax Revenue – This concern is easily addressed. Besides the government having to draft the bill and pass it, there is little by way of financial commitment having to come from the government of Ghana.

It is bringing a new industry on board that has historically put very little back into the state pocket by way of taxes.

This sets the stage for industries to come and dig down roots in Ghana in the form of movie studios, sound stages, sets, and rental facilities for equipment and hotels, etc.

A primary example of this is Tesla and China, where China, being without the intellectual property and technological know-how of the best electric vehicle maker in the world, invited Tesla to come and set up in their economy, and since then has raised the regulation and taxation steadily, growing their economy from the revenue accumulated from such an endeavor. China is now poised to lead the world in electric vehicle manufacturing, because they set the stage first with enticing profit incentives.

It would be in error to try plucking the seeds before they have borne fruit (to try and optimize for tax volume when the model has not been tested and proven yet).

Drive Up Cost of Living – The influx of foreign investment often triggers artificial inflation of prices, as retailers see the higher purchasing power from persons from a country of relative wealth, and thus take advantage of that to charge higher prices. This has become a challenge in some communities already like mining towns in the middle of the country with a lot of Chinese citizens residing there. This is a real concern, and the local people should not have to be priced out of the affordable standard of living that they had. Furthermore, any rise in prices is likely to be offset in utility by the hundreds to thousands of new jobs that a potential policy like this could provide, thus it is still worthwhile in the long run.

Gentrification –  A massive influx of foreigners would impact the prices of commodities, so it would be with property prices, leading to the phenomenon known as gentrification. This is when property prices sharply increase during a period, forcing renters and home buyers in lower to middle-income neighborhoods out because they can no longer afford the property prices in the neighborhoods, they grew up in.

Again, this is a very real concern that has played out in real-time in places like Costa Rica, where a vast percentage of white Americans migrated to take advantage of lower taxes, leading to protests by local citizens, and has even become a problem in Atlanta, Georgia, where the Georgia Entertainment Industry Investment Act was passed a little over a decade ago.

This can be curtailed in several ways. One, zoning laws can be enforced to make sure that infrastructure like movie studios are not constructed in areas with low-income housing.

Also, regulations can be passed to ensure that landlords in certain areas where film studio infrastructure will be set up either temporarily or permanently, do not take undue advantage of the situation to hike up prices to a ridiculous degree.

Cultural depictions – There is also the looming problem of insensitive/offensive cultural depictions, which might occur with such a policy. This is a problem for the primary reason that as the government represents the peoples will it flies in the face of that mandate to allow Western influences to come in and use the resources of the country to depict cultural elements which might run contrary to the collective ethic of the people of Ghana. This is not alien to the Western political structure either. The United States Military has the Film Liaison Office, part of the Department of Defense’s Public Affairs division, that reviews Hollywood scripts before approving movies that make use of military facilities and personnel in the footage. They check for negative/harmful depictions of the US military. Many films are screened through this system such as billion-dollar hits Top Gun: Maverick and Captain Marvel. There is precedent for such checks and balances even in the West, and this is something that the country can easily incorporate with a potential policy like this, such as;

1. Reviewing of scripts – Scripts can be approved by a board before filming to ensure that it does not contain harmful or insensitive cultural depictions of the people of Ghana or her institutions.
2. Cultural sensitivity training – This can be given to movie studios when they come to make them aware of the cultural/ethical landscape of the country and set the expectations for them as to the standards they would have to meet.
3. Complaints Mechanism – This can be set up for citizens who have complaints or concerns about certain depictions to notify the authorities as a form of quality control and a democratic process of hearing out the people’s voice on the matter.
4. Code of Conduct – A code of conduct can be crafted for filmmakers who enter the country to disincentivize vices like prostitution, and drug abuse as well as other kinds of behaviors that cut against the collective ethic of the people of the Republic of Ghana.

Asymmetrically Beneficial Relationship – There is the risk of this potential policy overwhelmingly benefiting the studios who come here to work, as they get a tax break and the country gets a mediocre return and lost tax revenue. Tax credits are often criticized for this very effect. However, this can be easily mitigated, with the following;

1. Require that companies spend a minimum amount of money in the country to qualify for the tax credit – If the bill mandates that a minimum amount of money has to be expended before studios qualify for the tax credit, that will eliminate any sort of exploitation that might occur by getting the tax credit and not putting back a benefit in the Ghanaian economy of proportionate terms.
2. Require that studios employ a certain percentage of local talent – As stated earlier, the cheap labour of the African market relative to the rest of the world makes it make financial sense to hire mostly local talent in the first place for the production crew. However, the government can grease the wheel even more by mandating that a certain percentage of the production crew has to be locally sourced. This will accelerate training for young creators and producers and increase employment in the entertainment industry on a magnitude that has never been seen before in the country’s history.

The unmatchable power of cultural impact

When you think of places in the West you would love to visit the instant you had disposable income and some leisure time, I bet New York, Paris, London, Venice, Rome or Amsterdam would be your top 10 if not top 5. This is no accident. There is a theory proposed by sociologist Robin Dunbar (The Dunbar Number theory) that the average human can only contain about 150 social relationships in their brain, suggesting that there is a cognitive limit to the number of references we can sustain in our regular mental orbit.

Elevating a country to city to pop culture relevance or notoriety helps serve as a sort of constant beeping mental signal in the popular imagination, such that it seems almost intuitive and happenstance that one should want to visit the Eiffel Tower or Disney World, as natural as liking candy. The insidious undergirding reason is that these have been in the background of the media your eyes have stored in your brain for decades. You associate them with your childhood, precious memories, or the exhilarating feeling while consuming content. It is no surprise that these remain tourist hotspots to this day.

Also, cultural elements are eternal. Movies, television etc. are being consumed today that were made 50 years ago, or remakes of movies that were made 50 years ago. New York or Paris does not have to run advertisements because the plot of a movie showing Times Square or the Louvre will promote the city to two billion eyeballs, basically for free. Simply put, there is no amount of advertising the government of Ghana could pay for that would have as much return as a policy like this on any scale.

This is a proven precedent, with many examples such as;

The Lord of the Rings (2001-2003) and New Zealand. The Lord of the Rings trilogy was filmed in New Zealand, and the country has seen a significant increase in tourism since the movies were released. In 2001, the year the first movie was released, New Zealand received 1.7 million tourists. By 2014, that number had increased to 3.8 million.

Game of Thrones (2011-2019) and Northern Ireland. Game of Thrones was filmed in several countries, including Northern Ireland. The show’s popularity has led to an increase in tourism to Northern Ireland, with many fans visiting the filming locations. In 2017, Northern Ireland received 2.9 million tourists, up from 2.2 million in 2012.

The Bourne Identity (2002) and Paris, France. The Bourne Identity was filmed in several cities, including Paris. The movie’s popularity has led to an increase in tourism to Paris, with many fans visiting the filming locations. In 2017, Paris received 19.1 million tourists, up from 17.4 million in 2002.

The Hangover (2009) and Las Vegas, Nevada. The Hangover was filmed in Las Vegas, and the movie’s popularity has led to an increase in tourism to the city. In 2009, Las Vegas received 40.7 million tourists, up from 38.5 million in 2008.

Twilight (2008-2012) and Forks, Washington. The Twilight Saga was filmed in several locations, including Forks, Washington. The movie’s popularity has led to an increase in tourism to Forks, with many fans visiting the filming locations. In 2012, Forks received 1.5 million tourists, up from 1.2 million in 2008.

Conclusion

The proposed tax incentive program represents a pivotal opportunity to transform Ghana’s movie and television sector into a dynamic force that propels our nation forward. It would attract foreign investments in the movie and television industry, leading to an influx of funding and creating opportunities for local filmmakers, actors, and crew members. This would boost job opportunities, both directly in production and in ancillary industries such as hospitality and transportation.

A bill like this would also elevate Ghana’s profile on the international stage, positioning the country as a desirable destination for tourism and business travel. Additionally, the establishment of film studios and production facilities would contribute to infrastructure development and stimulate the local economy.

With low cash investment from the government, this offers high returns and the potential for long-term growth of the Ghanaian film industry. While concerns about rising costs and gentrification may arise, they can be addressed through regulations and zoning laws.

Overall, this presents an opportunity for Ghana to showcase its diverse landscapes, talent, and culture to a global audience while reaping the economic and cultural benefits similar programs have brought to other countries. By providing the necessary support and adopting a forward-thinking approach, we can foster an environment where creativity thrives, jobs are created, and Ghana’s cultural legacy is celebrated on the global stage.

An appeal is made to policymakers, stakeholders and the entire industry to recognize the potential economic and cultural contribution the entertainment sector could bring and diligently act to create an enabling environment that triggers a resurgence in the industry’s growth, all with one single step; legislation.

source; thebftonline.com

On 31st May, 2023, Koranteng & Koranteng Legal Advisors, as part of our yearly Corporate Social Responsibility, had the opportunity to present a career talk to the students of Nii Sowa Din Memorial 2 JHS, located close to School Junction, Nmai Dzorn, in the Greater Accra Region of Ghana. In June 2022, we planted trees in the school and promised to return.

 

This program, titled “Paths to a Legal Career”, was delivered by the firm’s Associates. Topics discussed included: the roles and duties of a lawyer, the various pathways to becoming a lawyer, the human rights guaranteed under the 1992 Constitution and leadership.

 

In addition, the firm presented to the school books and chocolates, symbolizing our commitment to education and community support.

Overall, it was an unforgettable event. Students engaged fully with our Associates, asking many questions on the myths and intricacies surrounding the legal profession. We were delighted to have had the opportunity to interact with such bright young minds in our community.

We thank the Management of Nii Sowa Din Memorial 2 JHS for having us once again.

#CorporateSocialResponsibility #CSR #Education #CareerDevelopment #Mindset #lawyers #LegalCareer #LegalEducation #CareerGuidance #InspiringYoungMinds

In Ghana, gold mining has always been a profitable venture for people in areas rich with minerals. Small-Scale Mining (SSM) is a major driver of the economy, directly employing an estimated 1 million Ghanaians and supporting around 4.5 million others. SSM has accounted for around one-third of the country’s total gold output in recent years.

According to the Ghana Chamber of Mines, SSM accounted for 34percent of gold production in Ghana in 2019, and the sector directly employed over 1 million people. In the same year, SSM contributed to about 16percent of total gold export revenues, which amounted to about US$6 billion. In terms of its contribution to Ghana’s GDP, SSM is estimated to contribute about 7percent to the country’s GDP. This figure includes both direct and indirect contributions, such as employment, tax revenues, and the supply of goods and services to the SSM sector.

Community Mining is not different from SSM in terms of its nature and regulation. SSM is a formalized method of mining regulated by the Minerals and Mining Act, 2006 (Act 703). Community Mining is a new programme introduced by the government of Ghana aimed at formalizing illegal SSM (galamsey) in selected communities across the country and diverting the interest of the youth from illegal mining to properly regulated mining. Community Mining was specifically designed to respond to the wanton illegal mining that plagued the country.

A Community Mining area is land that has been designated by the Minister responsible for Mines to encourage responsible mining by the community in accordance with Act 703 or a portion of a concession of a large-scale mining lease that has been permitted for the purpose of the tributer system.

A tributer is a person who is employed or contracted to win minerals by the holder of a mineral right or a person who is allocated a working area by the holder of a mineral right and who receives in return remuneration in accordance with the quality and quantity of the minerals won. Typically, the holder of the mineral right keeps one-third of the profits, and the balance is distributed to mining workers.

The introduction of the Community Mining Scheme (CMS)

Pursuant to the fight against illegal mining, the government has commissioned 15 CMS across the country from 98 mining concessions covering a land area of 2,174.94 acres to address the destruction caused by illegal mining. CMS are to replace illegal mining and give opportunities for people to engage in Community Mining. The thrust of this policy is to create jobs and improve livelihoods in mining communities. Further, it is to improve the working conditions of the mining operators and minimize environmental degradation caused by illegal SSM over the decades.

Regulation and administration of the Community Mining Scheme

Per the Minerals Commission’s Operational Manual for Small-Scale and Community Mining, CMS shall be implemented by the Minerals Commission and supported by the following governmental institutions:  the Environmental Protection Agency, the Water Resources Commission, the Forestry Commission, the Ghana Geological Survey Authority, Metropolitan, Municipal and District Chief Executives (MMDCEs) and security services.

According to the Small-Scale and Community Mining Operational Manual, September 2021, as issued by the Minerals Commission (Community Mining Manual), Community Mining is SSM operating in line with sections 81 to 99 of Act 703. Moreover, CMS are governed by a Code of Practice developed by the Minerals Commission. The code shall guide the operation of CMS in accordance with Regulation 475 of the Minerals and Mining (Health, Safety and Technical) Regulations, 2012 (L.I. 2182). The Code of Practice shall be adhered to by the miners who are permitted to participate in CMS and shall be signed off as part of the application process.

There is a Community Mining Oversight Committee established under the CMS which is composed of all members of the SSM committee in section 92(3) of Act 703 and the Minerals Commission. The committee shall have oversight responsibility over the CMS by assisting the District Officer (the designated officer under the minerals commission responsible for mining in the district) in effectively monitoring, promoting, and developing mining operations in the designated area.

Its other functions include overseeing the administration of the permitted area under the scheme, disintegrating illegal mining and transforming it into CMS, registering holders of SSM licenses within areas permitted under the tributer system, ensuring compliance with the relevant or applicable legislation, and ensuring that illegal mining activities do not occur within the community.

Who qualifies to engage in CMS

The process of acquiring a license for Community Mining is similar to that of SSM. An applicant has to be either an individual or a body corporate. A person must qualify under Act 703, that is, to be a citizen of Ghana and also be more than 18 years of age and be registered with the District Office in the designated area. It can also be operated by a body corporate, co-operatives or partnerships, or sole proprietors based in the community.

If it is a company, there should be valid company registration documents. Other requirements include SSNIT certification and insurance coverage for staff.  The company has to obtain the requisite licenses, permits, and any other authorization from relevant regulatory bodies. In addition to these, it has to demonstrate a capacity to invest a minimum capital of GH¢100,000 (which may be revised from time to time).

The process for acquiring a Community Mining license is contained in the Community Mining Manual. Under the CMS, the maximum area to be granted to a person or company is 25.2 acres in accordance with Regulation 204 of the Minerals and Mining (Licensing) Regulations, 2012 (L.I. 2176).

The Community Mining license is mainly for the extraction of minerals. Once the license is acquired, a person may win, mine, and produce minerals by an effective and efficient method and shall observe good mining practices, health and safety rules and pay due regard to the protection of the environment during the mining operation.

CMS are a subset of SSM; therefore, the law in respect of the validity of SSM licenses according to Act 703 applies to CMS. According to Section 85 of Act 703, the license is valid for 5 years subject to renewal. Act 703 makes it an offense punishable by a fine or imprisonment for a term of not more than three years or both for persons who engage in SSM or CMS without a license.

Benefits of the Community Mining Scheme

• The core object of CMS is to address the destruction that illegal mining causes to the environment and to enable youth participation in SSM.
  • Illegal mining has devastating consequences on the environment thereby posing a deadly threat to human life. Some of the causes of these consequences are the use of toxic chemicals such as mercury and cyanide in water bodies, deforestation due to the indiscriminate cutting down of trees, and many other industrial activities. Data from the 2020 Ghana Rapid Health Situation Assessment Report indicates a high prevalence of typhoid, among other diseases in many mining communities.
  • CMS will create jobs for the people in the illegal mining zones by ensuring that there is a total clampdown on illegal mining. For example, CMS has provided direct and indirect employment for a significant number of people, including women and youth in Tarkwa. They have also provided indirect employment to others such as tricycle riders, hawkers, and others whose services include the provision of necessities in the community.
• CMS encourages local participation. This local participation comes in the form of provision of credit facilities by financial institutions and mining support services by mining support services companies. Mining support services are essential mining services for the purposes of exploration, mining, environmental management, equipment hire, financial services, centralized processing unit, and gold trading. Prior to CMS, foreigners were involved in activities of illegal mining contrary to the Minerals and Mining (Amendment), 2019 (Act 995).

Act 995 prohibits a non-Ghanaian to provide mining support for SSM operations.   Act 995 provides punishment in the form of fines and imprisonment for non-Ghanaian participation and for any Ghanaian who permits a non-Ghanaian to participate in SSM business.

• CMS will enhance the generation of revenue for the government in two important ways. The first is with the mandatory record-keeping and reporting requirements. As part of the record-keeping and reporting requirements for license holders, CMS will keep records of minerals won, quantities sold, revenue received, taxes paid, and royalties paid and payable.

The CMS Manual makes it mandatory to file a monthly report of returns from the operational activities undertaken in the mining area to the Minerals Commission. This will assist with the tracing of revenue and increase revenue for the government. The second is the prohibition of the sale and purchase of gold from unauthorized agents.  Act 995 prohibits the selling and buying of minerals without a license.

The Code of Practice for SSM and CMS directs the selling of all their produce to their agents who have been duly licensed to purchase gold. This will enhance the sale of gold by ensuring that gold trading is carried out through authorized or licensed dealers. The regulated gold trading market will cause an increase in gold revenue from the CMS.

Strengthening the CMS to achieve its maximum potential

• Addressing the barriers in the small-scale mining regulatory framework

The major barriers in SSM include outdated legislation, minimal active involvement of local-level stakeholders, bureaucratic and resource-consuming processes, and limitations regarding monitoring and compliance. The bureaucratic processes typically involved in obtaining SSM licenses make it difficult for local entrepreneurs who may not be educated to comply. These processes and their associated costs, making compensation payments to landlords, and other informal costs along the chain disincentivize prospective miners from following the legal route. There are instances where foreign investors with enough capital use locals (who lack such capacity) to acquire a formal license which these foreigners use to operate illegally.

For the CMS and SSM value chain to run sustainably, mining legislation must be periodically and actively amended to address, in detail, challenges faced by applicants in the acquisition of CMS licenses.

• Strict compliance with the law

There needs to be strict compliance with environmental laws in Ghana. There should also be strict enforcement of the Environmental Impact Assessment, and the reclamation program (the process where all holes created through the mining activities are closed and revegetated) by the SSM sector. The Code of Practice for SSM and CMS states some environmental measures that should be followed. These include:

• Prohibiting the discharge of chemicals into natural drainage during operations.
• Conducting concurrent reclamation.
• Re-vegetating the reclaimed land with indigenous and economic trees e.g., acacia, casia, oil palm.
• Prohibiting mining in environmentally sensitive areas in accordance with Regulation 30 (2) of the Environmental Assessment Regulations, 1999 (L.I. 1652).

Regulatory and field officers must conduct their administrative functions in a more diligent manner to enhance compliance with these directives by community mining operators. Moreover, sanctions as backed by law, should be applied to operators who deviate from recommended operating protocols. To further encourage compliance, additional incentive packages, which promote safe and environmentally sound mining could be promoted for CMS.

• Contribution by the mining companies as part of their Corporate Social Responsibility (CSR)

CSR is one of the initiatives of large-scale mining companies to drive socioeconomic development in the country. As one would expect, mining companies should have an obligation towards communities they operate in as part of their CSR.

In the past years, mining companies in Ghana have contributed immensely to the development of Ghanaian communities with a focus on education (including scholarships), health care, infrastructure, access to potable water, roads, sanitation and agriculture. Mining companies are also expected to extend their CSR policy to cater for Community Mining and SSM. This could be through the provision of funds, equipment, and technology. Large-scale mining companies ought to embark on CSR policies that seek to strengthen and promote CMS in the communities within which they operate. There ought to be a long-term policy that ensures that citizens in host communities benefit from community mining.

• Contribution by the MMDCEs, Chiefs, and MPs

The success of the CMS cannot be fully realized without the contribution of MMDCEs, Chiefs, and MPs. Regrettably, some stakeholders are the major influencers in the activities of illegal SSM. They do this by engaging in the following acts: the illegal sale of land, compulsorily dispossessing rightful landowners of their properties, taking of royalties and other payments from the illegal miners among others. Chiefs, Queen mothers, and Assemblymen are custodians of the land and are to protect and secure the land and all natural resources.

As custodians of the land, they are to ensure that there are areas designated for CMS that do not conflict with people’s rights or interests in the land.  In addition, there should be a sensitization program for these stakeholders. The program should highlight the relevant law and regulatory compliance, safe methods of mining, and the dangers of illegal mining.

• Contributions by Civil Society Organizations (CSOs) and Non-Governmental Organizations (NGOs)

Civil society organizations have a unique and adaptable role in engaging with mining sector stakeholders on a wide range of issues. In particular, they can influence and inform both government and stakeholders and can be effective brokers in designing and implementing solutions to complex social and environmental problems under the wider umbrella of a formalization process.

NGOs and CSOs are encouraged to promote Community Mining. Organizations such as SOLIDARIDAD, A Rocha Ghana, Friends of the Nation, and Fairtrade work actively in the mining space by influencing policy, providing technical, educational, and in some cases financial support to select actors (miners, regulators, communities, and landlords) within the chain.

CSOs and NGOs ought to influence policy in SSM and Community Mining by forming active CMS cooperative groups and positioning them to benefit from support services like training, investment finance, and information. Fairtrade International, as an example, identifies and certifies small-scale mining cooperatives whose members are trained to meet internationally accepted ore extraction and environmental standards. Member cooperatives further benefit from incentives like premium prices for their marketed produce.

A key priority for Ghanaian CSOs working on the extractive industries’ issues will be to

• Review past experiences of illegal mining and set vision, outcomes, and objectives for future engagement with CMS and towards amendment of the existing legislation;
• Develop an action plan that is realistic and supported by available resources to achieve an agreed outcome; and
• Rally for a flexible and cost-effective mode of application for a license which will in turn provide the opportunity for host communities to take advantage of the CMS.

These policies will assist with strengthening the CMS to achieve their maximum potential.

• Contribution by research institutions, academia, and universities

 The University of Mines and Technology (UMaT) is the primary research and development institution in Ghana’s mining value chain.  UMaT works closely with the Minerals Commission, EPA, Chamber of Mines (an association of commercial miners), and the Ghana Association of Small-Scale Miners to develop and adopt safe and sustainable mining methods.

UMaT also develops appropriate technologies useful for the sector including the ‘sika bukyia’, a technology for the direct smelting of gold concentrates as an alternative to mercury amalgamation. This technology has been piloted in selected mining communities nationwide with the intention of improving it for commercial distribution.

Other institutions such as African Center for Transformation (ACET) have been researching and advising on ways for resource-rich African countries to leverage their extractives sector to expand job creation, stimulate the growth of local businesses, and contribute to broad-based, sustainable development. It would be ideal for tertiary and research institutions to come up with specialized training, conferences, courses, and workshops for members of community mining. As a pacesetter, UMaT has trained about 2000 to 5000 registrants, and they have received their licensing to start mining.

Conclusion

The SSM sector is a major revenue driving area for Ghana. CMS is part of SSM therefore there ought to be a consistent effort by the government to enhance the regulation and promotion of CMS. The CMS programme, if properly implemented and given the required constant focus, will be one of the innovative ways to address illegal mining in the country.

Through a combination of tackling barriers in the SSM regulatory framework, ensuring strict compliance with the law, advocating for CMS-focused CSR programmes, encouraging logistical contributions by MMDCEs, Chiefs, and MPs, policy contributions by CSOs and NGOs and further contribution by research institutions, academia and universities, we may see a maximization of the benefits the CMS were intended to bring to the various communities.

Finally, there should be continued corporation among the various implementing ministries, departments, agencies, NGOs, and other stakeholders to promote mining methods that have no or a lower environmental impact, and to encourage private sector investment in the CMS.

source; thebftonline.com

The Ghana Stock Exchange (GSE) – through its membership with the African Securities Exchanges Association (ASEA) – has signed a memorandum of understanding (MoU) with the Pan African Payments and Settlement System (PAPSS) to collaborate on ways to enhance the payment process for cross-border securities transactions in Africa.

The MoU signing, which took place during ASEA’s 73rd Executive Committee Meeting on April 14, 2023 – alongside the 11th Building Africa Financial Markets (BAFM) seminar hosted by the Zimbabwe Stock Exchange (ZSE) – is anticipated to yield numerous advantages, including capital markets integration across the continent.

PAPSS is a financial market infrastructure that is supported by the African Union Commission, African Export-Import Bank (Afreximbank) and the Africa Continental Free Trade Area (AfCFTA) secretariat. The platform’s primary objective is to promote trade and economic integration across Africa by offering a dependable, secure and efficient method of settling cross-border transactions.

Commenting on the MoU, the president of ASEA, Thapelo Tsheole said: “Signing the MoU between ASEA and PAPSS marks a significant step toward enhancing the efficiency and liquidity of African securities exchanges. We look forward to working closely with PAPSS to identify potential ways of easing payments and settlements as we seek to facilitate cross-border trading of securities among member exchanges. In the coming weeks, we will hold consultative meetings to establish an implementation plan for this collaboration”.

Mr. Tsheole emphasised that PAPSS could be instrumental to the African Exchanges Linkage Project, which aims to facilitate cross-border trading. ASEA, with its nine exchanges and a market cap of US$1.5trillion, provides an ideal umbrella for PAPSS to achieve its objectives.

The MoU’s timing has been described as “especially relevant” considering the recent introduction of ASEA’s African Exchanges Linkage Project (AELP) in December 2022, which aims to make cross-border trading more accessible.

With assistance from the African Development Bank (AfDB), ASEA has made notable advancements in connecting member exchanges across the continent through the AELP. The first phase has covered seven exchanges and 14 countries, and they plan to broaden this to 15 exchanges throughout 22 countries.

Offering their thoughts on the MoU, analysts described the partnership as a significant development for the country’s capital market.

A Senior Research Analyst at Tesah Capital, Joshua Adagbe, believes that by integrating PAPSS into the cross-border capital market framework, issues with currency convertibility are expected to be resolved while costs, processing and settlement times will be shortened. This will foster access to capital and help drive economic growth on the continent.

“It is a step in the right direction; it is one of the things we have been looking for since implementation of the AfCFTA. Integration with PAPSS will bring more efficiency to the Ghana Stock Exchange and attract more foreign investment. We expect to see an increase in trading activity and liquidity in the market,” he said.

“For Ghanaians seeking to invest in foreign markets, utilising the PAPSS platform will lead to more efficient and cost-effective payment and settlement of transactions. Imagine, as a Ghanaian, I want to buy stocks in Nigeria or another African country; I would have been looking at the exchange rate. Now, payments will be made in cedis and settlement will occur in the currency of that country through banks of both countries,” he added.

Similarly, president of the chapter of Chartered Financial Analysts (CFA-Ghana), Nana Wiafe Boamah, is optimistic that following periods of extended talk and planning, the move will among other things reduce incidents of limited liquidity on the Accra bourse.

“We know that our market has been historically plagued by low levels of liquidity as many of the institutional investors typically buy and hold; with the coming into play of this partnership, we should see more listings locally. And with a more mature investor base, trade volumes should benefit – and liquidity as well. When there is an IPO, issuers will know that they are accessing a vast base beyond the country,” he explained.

“This partnership will help to bridge the gap between Ghana and other African countries’ capital markets, which is essential for economic growth and development,” Mr. Boamah added.

The GSE has seen a rebound over the last eight weeks as its benchmark composite index (GSE-CI) – which measures the performance of listed stocks – ended the third trading week in April at +9.02 percent, compared to -12.38 percent at the beginning of the year. During the period under consideration, market capitalisation stood at GH¢66.79billion.



source; thebftonline.com

KORANTENG & KORANTENG  LEGAL ADVISORS has been ranked as a “Firm to Watch” in Ghana for Energy and Capital Markets by the Legal 500 Europe, Middle East and Africa 2023 Law firm rankings


source; thelegal500.com

An interesting phenomenon is occurring in modern warfare. Drones have become a pervasive feature in the war against Ukraine. The media has dubbed the war a “remote-control war”. Both Russians and Ukrainians have resorted to using drones to track the enemy and drop grenades. Hitherto, weapons such as Multiple Launch Rocket Systems (MLRS) dominated the battlefield. Drones have proven to be advantageous to Russian and Ukrainian troops on the front line.

These troops use them for battlefield reconnaissance and to attack enemy targets. Drones are adaptable and can be easily improvised for use as weapons. The same models used by photography enthusiasts and for drone racing can be used in a war for intelligence purposes. Though some drones are small in weight and weigh less than 500g, they can carry explosive weapons such as a kilo of grenades.

This technology has remarkably become a subject of diplomatic, military and economic policy wranglings. The United States of America has put in measures such as export controls to curtail the sale of advanced semiconductor chips used in military appliances like drones. Interestingly, The United States has blacklisted DJI, a Chinese company which is the largest manufacturer of drones.

Countries currently aligned to Russia or Ukraine are supplying the two countries with military drones. Russia regularly uses Iranian Shahed-136 drones to attack Ukrainian cities. Ukraine on the other hand has received drones such as the Norwegian Black Hornet reconnaissance drone and the Turkish missile-equipped Bayraktar TB2. A technology used for both civilian and military purposes is turning out to be a game changer in the war. This technology allows countries with less military capabilities to stretch limited forces.

What are Drones?

Drones are essentially unmanned aircrafts or remotely piloted aircraft systems. In effect, they are unmanned flying objects either controlled remotely or operating completely autonomously. In addition to its software, autonomous drones utilize other advanced technologies such as artificial intelligence, cloud computing, computer vision, deep learning, machine learning and thermal sensors to enable them carry out missions without human interventions.

Drones are also known as Unmanned Aerial Vehicles (UAVs), Unmanned Aircraft Systems (UAS), Small Unmanned Aerial System (SUAS) or Remotely Piloted Aircraft Systems (RPAS). These terms are sometimes used interchangeably. For the purpose of this article, drones, UAVs or RPAS will be used interchangeably and refer to the same thing.

History

Drones were originally developed in the 20^th century for military purposes and used in military missions which were deemed “too dangerous” or risky for humans. As technology advanced and drones became more affordable, it became available for other civilian purposes.

The first recorded basic concept of drones being used for military purposes was in 1849. The Austrian Navy attacked the city of Venice during a siege using 200 bomb-laden balloons. Fortunately, only one bomb found its mark, changing winds diverted the course of most balloons. The first pilotless vehicles were developed in Britain and the USA during the First World War.

During the Vietnam war, reconnaissance UAVs were deployed on a large scale. Around that time the range of usage for UAVs expanded, they were used to launch missiles against fixed targets, and for psychological operations such as dropping of leaflets. In the Yom Kippur War of 1973, Israel used drones as decoys in combat.

In the 1990s, American and Israeli companies developed more advanced drone technology which were more cost efficient. After the devastation caused by Hurricane Katrina in 2005, the Federal Aviation Authority of the United States allowed drones to fly in civilian airspace for search and rescue missions. Predator drones with thermal cameras were able to detect the heat signatures of humans from up to 10,000 feet away. Around this time, the commercial drone industry began taking shape. The general public started to have a keen interest in the technology, after Amazon announced it would use drones for delivery in 2013.

Uses

Aside from their well-known military use, drones are used by police departments across the world for law enforcement purposes. They have been used to perform critical search and rescue missions, forest fire detection, border and maritime patrol, and road traffic surveillance. In the energy sector, drones are used for power and pipeline inspections. They serve as a surveying tool in the real estate industry. They are progressively use for climate change monitoring and environmental analysis.

Agricultural and mining companies are increasingly using drone applications in their operations. The technology offers immense benefits to the agricultural industry and is used for pest control, plant health monitoring, aerial spraying, soil analysis etc. In the field of precision agriculture, drones accurately measure and study crop production. Mining companies utilize drone technology in surveying and mapping of mining sites. Drones are excellent tools for precision mining. They can access tighter spaces in complex mine sites and collect accurate geospatial data more efficiently.

Drones are most famously used in Ghana in the entertainment industry for event management, aerial photography and videography. They are also used for product deliveries, a notable case in point being Zipline Ghana; a logistic company with the world’s largest fleet of medical-delivery drones in Ghana. For civilian purposes, many drones utilize a quadcopter configuration.

Drones and regulations in Ghana

There is a growing industry of drones and drone operators in Ghana. This trend is expected to grow further as drones gain more commercial applications. The Ghana Civil Aviation Authority (GCAA) is the mandated government authority in charge of regulating air transportation in Ghana. The GCAA also provides air navigation services within the Accra Flight Information Region (FIR), which comprises the airspace over the Republic of Ghana and a large area over the Atlantic Ocean in the Gulf of Guinea.

The GCAA in addressing the use of drones has issued the Ghana Civil Aviation (Remotely Piloted Aircraft System) Directives, 2018 – Part 28 (“the Directive”), to guide the operations of drones in Ghana’s airspace and at aerodromes. The Ghana Civil Aviation Authority collectively refers to drones in the Directive as Remotely Piloted Aircraft Systems (RPAS).

Classification of RPAS

Drones may be classified according to weight, range or endurance. Such classification helps drone operators know the appropriate laws applicable to their UAVs. The GCAA classifies drones into three (3) broad categories;

• Small RPAS: unmanned aircraft with maximum take-off weight up to 1.5 kilograms. This shall be flown only within the visual line of sight (VLOS) of the pilot.
• Light RPAS: unmanned aircraft with maximum take-off weight of more than 1.5 kilograms but less or equal to 7 Kilograms. This shall be flown only within the visual line of sight of the pilot.
• Large RPAS: all unmanned aircrafts with maximum take-off weight of more than 7 kilograms. This can be flown either within the visual line of sight of the pilot or beyond the visual line of sight (BVLOS) of the pilot.

A picture showing the Visual Line-of-Sight. Source: www.researchgate.net

Important Guidelines for RPAS Operators in Ghana

The Directive provides that RPAS should be operated in a manner so as not to pose safety risks to other aircrafts, persons and properties.

• All RPAS must be registered with the GCAA.
• An operating permit issued by GCAA is required for all groups of RPAS. However, certification will only be required for commercial RPAS operators.
• An operating permit is subject to annual renewal.
• All RPAS flights are limited to a maximum height of 400 feet above ground level. For flights above this level, the approval of the Authority is required.
• No RPAS shall operate within a 10 km radius from an airport or helipad.
• All private and recreational RPAS operations shall be limited to Visual Line-of-Sight operations in daylight unless permitted by the Authority.
• Only one RPA shall be controlled by an RPS (Remotely Piloted Station) at any given time.
• No RPAS shall be operated at night without prior authorisation by the Authority.
• Operators of RPAS are forbidden from flying in restricted, prohibited and danger areas without prior authorisation from GCAA and any other relevant Governmental agencies.
• RPAS shall not be flown within a radius of 30 meters from buildings and vehicles not within an operator’s control or without explicit permission from relevant persons or owners.
• Flying above populous areas, gatherings or other people’s backyards is prohibited, unless approval is granted.

Special authorisation is required when operating drones in the following operations:

• The carriage of goods
• Banner towing
• Cross border operations
• Hazardous operations
• Dropping and discharging of things
• Acrobatics, formation and racing flights
• Operations in the restricted areas of aerodromes
• Operations in areas of high RF transmission/interference (e.g., radar sites, high tension wires)

Applicants requesting for special authorization have to submit the application not less than thirty (30) days before the date of intended operation.

Concerns Surrounding the Usage of Drones

The use of drones raises privacy concerns and data protection issues. Drones combined with advanced surveillance technology may be able to identify and monitor individuals from a distance without their knowledge. Also, a Wi-Fi antenna affixed to a drone can be used to locate individuals through their mobile phones. This contravenes the right to privacy.

The right to privacy is a fundamental human right enshrined under Article 18 of Ghana’s 1992 Constitution. Article 18(2) provides that- “No person shall be subjected to interference with the privacy of his home, property, correspondence or communication except in accordance with law and as may be necessary in a free and democratic society for public safety or the economic well-being of the country, for the protection of the rights or freedoms of others.”

Complaints of drones being used to intrude on people’s privacy abound. The paparazzi is one cause of such complaints. They have resorted to using drones to capture images of celebrities in their backyards or in other private settings. Some paparazzi drones fly as low as 20 feet over celebrities’ homes.

The former governor of California, Jerry Brown, signed law AB 856 in 2015 which expands privacy protections to prevent paparazzi from using drones to photograph public figures on their private property. In addition, this law extends to individuals away from the public eye, safeguarding the airspace above people’s property. This has become a necessity because even non-celebrities have not been left out of “Peeping Tom” drones.

An example is an Australian couple that caught a drone spying on them through the balcony door of their fifth-floor apartment in Sydney. Drone operators must therefore be aware of privacy laws and data privacy risks, to ensure respect for people’s privacy and operation within the confines of the law.

Spying is another security threat issue caused by the use of drones. Governments can use the technology afforded by drones for spying purposes. In February 2023, suspected Chinese spy balloons were shot down over the United States airspace. These were allegedly used for surveillance purposes and for spying on sensitive military sites. There have also been ongoing debates of the ethical use of drones as weapons of warfare which sometimes result in unintended civilian casualties.

The future of Drones

The use of drones is projected to soar in the coming decade. It is expected that almost every sector of the economy will embrace the application of drone technology, especially the agricultural industry. The agricultural drone market is estimated to grow from a US$1.2 billion industry in 2019 to US$4.8 billion in 2024. There has also been tremendous growth in the drone inspection market.

The value of the inspections for confined spaces (e.g., oil and gas, power generation, mining, chemicals, marine vessels, and others) was US$795.12 million in 2019 and is projected to reach US$1,936.32 billion by 2027. As technologies and regulations develop, drone usage may include operations involving carriage of cargo and possibly passengers. In the not-so-distant future, domestic operations will likely expand to trans-border flights.

Conclusion

Clearly, looking at the numerous applications of drone technology in diverse industries, one can predict the further growth and integration of UAVs in everyday lives. In some operations, drones are a cheaper, cost effective and efficient option to use as opposed to manned flights.

An example being the current proliferation of drones in the Russia-Ukraine war and the recent use of the technology by logistic companies. Furthermore, there are low barriers to entry in operating drones. As such, regulations concerning UAVs are bound to evolve as drone technology advances. Legal issues such as the invasion of privacy and data protection are likely to become more topical.

source; thebftonline.com

It has been said that telecommunications and information technology have advanced the world beyond imagination. The telecommunications industry, being at the heart of several homes, organizations, and institutions, is very competitive owing to its constant evolution to meet the emerging needs of its consumers. This era of digitalization has forced telecommunication companies to take steps to not only stay afloat but succeed in the face of the fast-paced evolving nature of the sector.

Telecommunication companies are turning to Mergers and Acquisitions as one of the solutions for them to thrive. A merger is the corporate marriage or fusion of two existing companies into a new company or the absorption of one company by the other. In contrast, an acquisition is the adoption or takeover of a target company by the acquiring company.

The rapid growth of wireless communications has also created an incentive for merging or acquiring telecommunication companies to acquire other companies that complement their existing strengths in the hope of stimulating corporate synergy. These companies consider merging or acquiring another company as a strategic tool to enhance their performance; however, the end is not always fruitful.

Ghana’s telecommunication industry has gone through various forms of mergers and acquisitions for almost two decades – a trend that shows no signs of fading any time soon. Consequently, it has become necessary to consider some of the challenges with such transactions in the industry.

These mergers and acquisitions remain of interest as the telecommunication sector is one of the principal contributors to the economy of Ghana. In 2021 for example, the industry contributed GH¢4.3 billion in taxes to the economy. This amount represented 7.7 percent of government revenue for the period in review.

Why companies opt for mergers and acquisitions

In the United States of America and Europe, mergers and acquisitions in the telecommunication industry have been attributed to factors such as the revision of the American Telecommunications Act in 1996, a WTO Agreement in 1997, and the integration of the European Union in 1998. These events effectively removed the barrier of entry for foreign companies to operate in a specific country’s telecommunications market and resulted in an increase in the rate of mergers and acquisitions as most companies seeking to acquire were foreign.

Companies get involved in mergers and acquisitions to have a competitive edge in the market, greater financial strength for both companies involved in the transaction, and greater access to new markets, to help ensure business continuity and allow a company to reach a wider market of consumers.

By engaging in a merger or acquisition, a telecommunication company enters a new market where it does not need to start afresh but will rather thrive on the back of the reputation and customers of the target company or merging companies. When companies come together, everything is maximized including assets, financial strength, and human resources. A company that may have been struggling will likely have its fortune turned around as there will be an injection of capital.

In Asia, the number of mergers and acquisitions keeps increasing because of the need to improve the return on investment in 5G mobile networks. Unfortunately, the aftermath of mergers and acquisitions is not always positive as it may lead to loss of jobs or employees, post-merger/acquisition integration issues, and customer/consumer neglect among others.

The state of mergers and acquisitions in Ghana

Ghana’s telecommunication industry is no stranger to this phenomenon and has experienced 3 major acquisitions between 2006 and 2010. In the past 6 years, there has been another wave of such Mergers and Acquisitions.

MTN Ghana

In 2006, MTN Ghana acquired Scancom PLC as a subsidiary of the MTN Group of South Africa. It gained two and a half million subscribers, a number that increased to four million in 2007, and doubled to eight million by December 2009.

This allowed MTN Ghana to amass large profits in just three years of operation. Had MTN entered the Ghanaian market as a new company, without the acquisition, such profits may have taken a significantly longer time to make as it would have been starting from scratch. To date, MTN Ghana remains highly profitable company. The company posted a profit after tax of GH¢2 billion for the 2021 financial year which represents an increase from the previous year’s figure of GH¢1.13 billion.

Vodafone Ghana 

Another acquisition that took place was that of Vodafone Ghana which acquired a 70percent stake in Ghana Telecom from the government of Ghana in August 2008 for US$900 million. At the time, Ghana Telecom was the third-largest telecommunication company and a leading fixed-line operator. Vodafone Ghana projected the benefits would include exposure to the growing Ghanaian telecommunications market. Vodafone Ghana after the acquisition had the number of mobile phone subscribers increase. By April 2016, the company had a market share of 21.92percent. This made Vodafone Ghana rise to become the country’s second-largest operator.

Airtel

The next was the acquisition of the Zain Group by Bharti Airtel in 2010. This move by Bharti Airtel was not peculiar to Ghana but spanned 14 other African countries and was regarded as a very attractive acquisition. The acquisition was aimed at making Bharti Airtel an emerging markets telecom operator and to be among the five largest mobile operators in the world.

The Zain Group entered Ghana’s telecommunication space in 2008. Nine months to September 2009, Zain reported a net loss of US$112 million against a profit of US$169 million in the corresponding period the previous year. Seven of the 15 countries had also reported losses. Zain was not doing well at the time of the acquisition and that was a factor for Bharti Airtel to consider before the acquisition.

AirtelTigo

From the acquisition in 2010, Bharti Airtel seemed to be making steady progress. In 2017, they merged with Tigo in a bid to increase their share in Ghana’s telecommunication sector. They aimed to become the second leading telecommunications provider. Unfortunately, after the merger, the company became the third leading operator failing to gain a greater share, coming behind MTN Ghana and Vodafone Ghana.

It was presumed that once the merger was completed, the fate of the company would change in a positive direction. This has not been the case. In 2020, the company announced that they were leaving the country and by November 2021 their shares had been wholly acquired by the government of Ghana. Upon acquisition, the government stated that it was aware of the high capital injection required for the company and had made provisions to support the upgrade in infrastructure to give better services to its customers and work at becoming profitable.

It is worth noting that what is happening between Globacom Ghana and Airtel Tigo cannot  be considered either a merger or an acquisition at this stage. Publicly available information indicates that it is an agreement between the parties to permit Globacom subscribers to roam under the former’s network. Airtel Tigo has not taken over any assets or liabilities of Globacom Ghana.

Telecel/Vodafone 

The most recent acquisition in the telecommunication sector is that of Vodafone Ghana by the Telecel Group. Since 2021, Vodafone had been signaling its intention to leave the Ghanaian market. The company had indicated that it had been making losses despite huge investments in improving the quality of its service. Vodafone Ghana as the second largest operator had its subscriptions decline from 7.73 million to 7.32 million between March 2022 and June 2022.

By taking over Vodafone’s assets, Telecel will need to introduce highly innovative solutions to drive subscriber growth on all fronts and succeed in Ghana’s telecom space. The deal was concluded on 21st February 2023.

Mergers and acquisitions in Ghana’s telecommunications industry have not been always successful. The story of such failure is not only present in Ghana but reflects what happens globally.

Challenges with mergers and acquisitions in the telecoms industry

Among the factors accounting for the reduced success of mergers and acquisitions could be  the lack of proper integration planning which summarizes how and when resources, assets, and processes of the acquiring and acquired companies will be combined to achieve the goals of the deal. This applies both operationally and culturally.

The lack of consideration of the cultural differences of the companies includes the way employees work. While one company will have its staff being entrepreneurial and innovation-focused, the other company may have a more traditional and results-driven staff. Failure to provide a detailed integration plan in place when the transaction is made may lead to the companies involved functioning separately for longer than anticipated, resulting in increased costs.

Varying degrees of shareholder participation following a merger or acquisition could adversely affect growth of a company. Such behaviour causes progress to stall as full participation is needed to make certain improvements. An example is the complaint made by Vodafone Ghana against the government of Ghana which is a 30% shareholder in the company. The company had tried, unsuccessfully, to get the government of Ghana to redeem its financial obligations to boost operations.

An overly optimistic presentation of the financials of a company can lead to the failure of a merger or acquisition. Some companies seeking to acquire or merge, pay an extravagant purchasing price for the target company and then the transaction ends up not delivering the expected benefits. Companies may not sufficiently  factor in other expenses they must incur during and after the merger or acquisition such as redundancy packages, system upgrades, regulatory costs, the building and maintenance of towers, and other expenses. Such spending causes scarcity, restricting the use of the money when it is most needed. It could lead to insolvency in extreme cases.

Transacting companies must painstakingly undertake due diligence checks as certain companies may put up a good front when they are struggling financially. Due diligence covers checks concerning capital expenditure, regulatory issues, market dynamics, intangible assets, financial statement of the company, legal structure of the economy, the business, statutory regulations, list of legal cases filed against the company, partner agreement, and intellectual property regulation, the salary of employees and chances of an increase in salary, etc. Failure to conduct  sufficient checks or insufficient disclosure of information could lead to the companies misunderstanding the nature of a deal, the risks involved, and whether the deal fits with their portfolio. In the end, this will lead to the total failure of the transaction.

Overestimating synergies that is, the value from the alliance before an acquisition or a merger can be another cause for a pitfall. Synergy may be hard or soft. The former is also known as cost synergy and involves cost-cutting measures and expansion strategies designed to maximize value. Soft synergy enhances the revenue of companies. A small degree of error in calculating synergy could cause the transaction to malfunction of the merger or acquisition transaction.

A significant issue in mergers and acquisitions in the sector relates to tower infrastructure. Over the years telcos have sold off or leased the maintenance and operations of the tower sites to third party entities whose main line of business is the ownership, leasing and maintenance of towers. In 2010, MTN Ghana sold its towers and Vodafone leased to different tower companies.   While some of these tower sales or leases have been successful, in other cases, the cost of collocation has not necessarily worked in the interest of the telecommunication company.

If these issues are not addressed before a merger or acquisition occurs, it is likely the merger or acquisition will not be successful.

The Role of the Regulator: The National Communication Authority

The National Communication Authority was established in 1996 by the National Communications Authority Act, 1996 (Act 524). The Authority is the main regulator when it comes to the telecommunication industry in Ghana. The Act did not provide detailed procedural guidelines for dealing with the transfer of licenses and frequency authorizations, sale or transfer of a significant interest in a network operator or frequency authorization holder, merger or acquisition of a network operator or frequency authorization holder.

In 2022, the Authority published “Guidelines for mergers and acquisitions of network operators, frequency authorization holders, and other communication service providers” premised on sections 5 and 10 of the Electronic Communication Act, 2008 (Act 775). The objective was to have a clear regulatory framework for the industry and investors to assist parties concerned to make informed decisions on merger and acquisition activities, particularly as they relate to network operators.

Before the publication of these guidelines, there was no clear-cut process to follow. This does not put the failure of such mergers and acquisitions on the] Authority. However, due to the lack of guidelines, in some instances, there were delays with the final approval of the transaction.  Such delays may cause the inapplicability of time bound research done in furtherance of the transaction. The guidelines as provided by the Authority will provide a framework for decision-making and enhance the appropriateness of the process.

Conclusion

Overall, Mergers and Acquisitions are great business tools when used right. However, like any business transaction risks have to beminimized and companies must do all the groundwork needed.  A view espoused in the June 2016  issue of the Harvard Business Review on mergers and acquisitions generally, is that “M&A is a mug’s game in which typically 70%-90% of acquisitions are abysmal failures”, however, when done right mergers and acquisitions in the telecommunications sector can be profitable and indeed beneficial and timeous in a rapidly changing technology-based sector such as the telecoms industry.

source; thebftonline.com