Resisting political corruption- the story of Econet- Part Four

On February 5, 1996, President Robert Mugabe issued the presidential decree requiring private parties to obtain a license from the Ministry of Information, Post, and Telecommunications before setting up a cellular network.

This decree effectively restored PTC’s monopoly until a licensing board could be set up and the lengthy process of issuing the license could be completed.

Mugabe told Newsweek magazine that he was not out to get Masiyiwa, but to ensure other interested parties an equal chance of getting a cell phone license. The outgoing Minister of Information Cde David Karimanzira criticized Masiyiwa for taking the government to court.

When asked to explain the reason behind the presidential decree, Masiyiwa simply said – “I don’t pay bribes.”

Members of the government also pressurized Telecel International (which had agreed to take a 40% stake in Econet and had advanced the US$1 million for the equipment purchase) to ask for repayment of the money. In return, the government promised Telecel the second cellular license.

Accordingly, Telecel demanded its money back, and recruited new partners, among them Leo Mugabe, the President’s nephew, some ministers, and other prominent people.

Masiyiwa now turned to an American friend in Johannesburg, who was the Vice President for Africa of Southwestern Bell Corporation (SBC). This friend helped Masiyiwa negotiate a deal whereby Ericsson would repay the US$1 million it had taken for the equipment and convert it into a loan.

This friend then approached MTN, the South African telecommunications company in which SBC had a stake, to take up an option for a 40% stake in Econet in return for 8 million South African Rands. The deal with MTN also included technical assistance to Econet.

In April 1996, Masiyiwa challenged the constitutionality of the Presidential Decree in the Supreme Court. He also wrote to President Mugabe, expressing his disappointment at the Presidential Decree, and indicated that the President had been poorly advised in this decision.

Mugabe replied to the letter, suggesting that Masiyiwa meet with the Justice Minister.

“I had a meeting with the Minister of Justice, and I gave him our legal opinion to the effect that the Presidential decree itself, that the President had no power to issue the Presidential decree. And he agreed with that. Yes. The Minister of Justice said he had reviewed our position, and he was of the view that we should be licensed immediately. And all this across the table to us. But there was something he said and, I knew that we had a problem, so …

“It was a one-on-one meeting just attended by me and my lawyer Anthony Eastwood, and I said actually they're buying time and it was true. They had realized that they had to avoid a situation where I would file papers against the President, and remove the Presidential Powers Act – which by the way, Mugabe used so devastatingly during the election.

“I had an opportunity to pull down that whole piece of legislation. But we realized that they were buying time, and within days they convened Parliament. You must remember that at that time the Zimbabwe Supreme Court had a very independent team of well respected jurists who would have spared no time to deal with this piece of legislation.

“Mugabe then decided to introduce a new law through parliament using an amendment to the Telecommunications Act. This was pushed through a parliament which was 98% ruling party in a matter of days. They then re-issued the decree through the new Act. We then had to withdraw the earlier application against the Presidential Powers Act.

“One of the MPs (Members of Parliament) was a friend of mine, (she) said they were briefed on why they had to do it. She just cried. She said: I just went home and wept and wept and wept, because they had portrayed me as a most dangerous individual being paid by foreign Government to destabilize the country. And she knew that it wasn't true”

Soon afterwards, in June 1996, President Mugabe appointed a Cellular Technical Committee under the amendment to the Telecommunications Act to work on the tender and license conditions. In August 1996, Econet’s team of lawyers went back to the Supreme Court to present their arguments against the amendment to the Telecommunications Act, and in particular against the licensing process. The argument they used was that the government was acting in bad faith and was attempting to extend the monopoly through bureaucracy.

In September 1996, the PTC launched its own cellular phone service in Harare with 2,000 lines, using a US$ 24 million loan from international financial institutions.

Masiyiwa was by now in danger of running out of money. Newsweek reported that he had already invested US$5 million of his own funds. Throughout Masiyiwa’s battles with the PTC and the government, he received a steady stream of visitors, such as Ministers and other governmental officials, who would say to him:

“Come on Strive, be reasonable. Dear God, let’s end this. Why are you fighting? Let’s go and see the President and Cabinet Secretary, let’s talk to this guy. I said: Listen, I’ll go tonight. I’ll go and see him. And let’s restructure this, let’s accommodate A, B and C into this. It was always there. But the more I went, the more my convictions became clearer and clearer that I was making a stand, that I had to go this way, and the rewards would be greater if you stood by what you believe in”.

On December 18, 1996, the Supreme Court, in a unanimous judgment, ordered the new Minister of Information Ms. Joyce Mujuru to grant Econet a license by the end of February, 1997. The Court stipulated, however, that the license should be granted only if the provisions of the amendment to the Telecommunications Act were met. It added that if the government did not grant Econet or any other operators licenses by February 1997, then “Econet shall be deemed to be licensed for a period of three years.”

The court also ordered the Minister to pay four-fifths of Econet’s court application costs. Chief Justice Anthony Gubbay was critical of the government’s delaying tactics:

“I think the Minister is intent upon securing for the PTC the practical advantage of establishing itself in the market before another rival is admitted. There is a distinct element of unfairness in the delay. It is symptomatic of an absence of respect for the right of others to establish a mobile cellular service and of the corresponding right of the public to enjoy that facility other than through the (PTC) corporation.”

Although, the verdict had been favorable to it, Econet now had no choice but to participate in the tender process for a license. The team started working day and night to put together a competitive tender.

By S. Ramakrishna Velamuri.  Rama is Professor of Entrepreneurship at the China Europe International Business School in Shanghai, China

To be continued tomorrow

Part One

Part Two

Part Three

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