27 October 2003

Cote d'Ivoire: Seizure of U.S-Owned Ivorian Cell Phone Firm Ruptures Ties

Washington, DC — The American owners of a cellular telephone operator in Côte d'Ivoire that was shut down earlier this month are preparing a claim for damages. They charge the Ivorian government with failing to protect their investment.

The expropriation claim is being prepared by lawyers for Western Wireless, a Bellevue, Washington-based communications services provider, and Modern Africa, a $110 million fund with investments in nine African-based companies. Together, Western Wireless and Modern Africa report they have invested about $40 million in the mobile phone firm, known as Cora de Comstar.

On Friday the Bush administration weighed in with diplomatic backing for the American firms. Assistant Secretary of Commerce William H. Lash, III delivered what he termed "a very harsh demarche" to an official of the Ivorian embassy in Washington.

"This is the worst treatment of an investor and the worst example of state-sponsored thuggery I have seen anywhere," Lash said he told the Ivorian official summoned to the Commerce Department, standing in for Ambassador Youssoufou Damba, who was recalled to Abidjan last week for consultations. He said the treatment of Cora de Comstar could turn Cote d'Ivoire into a "poster child" for negative investment climates.

In a statement issued after a Council of Ministers meeting last Thursday, the Ivorian government denied the charges. "Cote d'Ivoire has never expropriated a foreign company, whatever the nationality, and has never had the intention to do so. The government deplores the incident that occurred between the protagonists and will take all necessary measures to deal appropriately and definitively with the issue," the Ivorian government statement said.

Although a legal dispute over ownership of Cora de Comstar has been brewing for more than two years, the current crisis was prompted by the takeover of the company's offices on October 9 by Alexander Galley, accompanied by 25 policemen who forcibly evicted the company's management and staff, according to the U.S. owners. They said Galley based his action on a decision by an Ivorian judge, whose order was subsequently cancelled by the Ivorian Supreme Court.

Galley is said by the Americans to be the subject of an arrest warrant in France, following a conviction for counterfeiting. An Ivorian with reported ties to the former Liberia president, Charles Taylor, Galley appears on the United Nations list of "Persons Subject To Travel Restrictions Pursuant To Resolution 1343 (2001) on Liberia," for alleged involvement in illegal arms trading with rebel groups in West Africa. The UN documents reports Galley as an alias, with his real name given as Raphael Dago Gnadre.

"He is not someone who can travel easily, so we don't understand why the Ivorian government says they can't locate him," said Steve Cashin, Modern Africa's managing director. Galley's claims to have purchased Comstar from the previous owner were found to be "null and void" by legal counsel before the two American firms made their acquisition in early 2000, Cashin said.

According to Brad Horwitz, president of Western Wireless International, the government of President Laurent Gbagbo is to blame for what has happened to the cellular company. "The government clearly had a choice to make: it could deal with a convicted criminal or it could protect a U.S. investment," he said. "We have given them numerous opportunities," adding that negotiations on the matter have dragged on for more than two years.

For the past several months, the investors operated Cora de Comstar on a cash basis, because a court had handed control over company bank accounts to Galley. But after the October 9 incursion, they shut the network down, cutting off service to some 33,000 customers, Horwitz said: "We have furloughed 200 employees. We have lost all revenues. Our offices have been systematically looted and trashed, safes wrenched out of the walls and stolen, all this with the complicity of the government. It comes to a point where enough is enough."

For the past year, Cote d'Ivoire has been caught up in widespread civil strife, with rebels from the north challenging Gbagbo's hold on power. An agreement to form a government of national reconciliation ended the fighting, but stability remains fragile and unrest continues. Journalists in Abidjan have told AllAfrica that the Cora de Comstar case involves high-level corruption and intriguue, but the extent of Galley's connections and influence within the Ivorian government remains unclear.

Both Modern Africa and Western Wireless have experience in many countries, Horwitz said. Western Wireless International has operations in Austria, Ireland, Slovenia, Georgia, Ghana, Bolivia, and Haiti. Even the December 1999 coup in Cote d'Ivoire, just at the time the Cora de Comstar deal was going through, did not dissuade Western Wireless and Modern Africa from making the investment, Horwitz said. "We still had confidence in the regulatory environment that existed in Cote d'Ivoire," Cashin said.

But that perception has changed, Horwitz said, adding that all prospective African investment "has been taken off the table" by the Western Wireless board because of what has happened in Cote d'Ivoire.

Africa often suffers this kind of fallout from the action of one government, "fairly or unfairly," said Steve Hays, president of the Corporate Council on Africa, whose members represent nearly 85 percent of all U.S. private sector investment in Africa. "It makes attracting investment to Africa that much more difficult."

Lash, who is assistant secretary of Commerce for market access and compliance, said Cora de Comstar's troubles seriously hamper any hopes Cote d'Ivoire may have had of boosting business ties with the United States. "This is such an egregious violation of not only investment security but of personal security that we could not recommend further economic contact or investment in the country," he said.

Most immediately, the dispute could weigh heavily against Cote d'Ivoire in the upcoming review of countries eligible for trade preferences under the African Growth and Opportunity Act (Agoa), adopted by Congress in 2000 to boost trade and investment ties between the United States and Africa.

Without prejudging the inter-agency review process, Lash said, "my view is that we give them a very tight deadline to remedy the situation before we take away their Agoa benefits."

Officials at the State Department, speaking on background, were similarly, if less stridently, critical of the Gbagbo government's failure to protect U.S. interests. "We get indications of interest and support for our position within that government," one official said, "but there have been snafus all along the way." U.S. Ambassador Arlene Render and her staff "have taken a very active posture in trying to get this resolved," the official said, a sentiment strongly echoed by the U.S. owners.

Another U.S. government agency involved in the dispute is the Overseas Private Investment Corporation, which serves as a guarantor for $70 million, or two-thirds of Modern Africa's $110 million capitalization. In the case of Cora de Comstar, the potential loss to U.S. taxpayers is $16 million.

Although the expropriation complaint the two U.S. companies plan to file will seek compensation from the Ivorian government for their entire stake, the firms acknowledge that they have little chance of receiving a $40 million payout. "I don't think the government has that kind of money," Horwitz said.

The best way to recoup the investment is "to put value back in this business," Horwitz said. But before the companies decide to spend what is required to restart the network and resume operations, "we need sufficient guarantees of security and safety to put our people there," he said.

The mobile telephone industry is one of Africa's fastest growing sectors, spurred throughout the continent by the popularity of prepaid service. According to Balancing Act, a newsletter covering African connectivity, cell phone subscribers in Cote d'Ivoire number over 500,000, more than double the number of fixed telephones in the country.

Cora de Comstar, which at peak operation counted as many as 100,000 users, was the third cellular company to enter the Ivorian market, after Societe Ivoirienne de Mobiles, controlled by France Telcom, and Telecel, a subsidiary of Orascom Telecom of Egypt, which operates in 13 sub-Saharan African countries.

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