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By Karen Abrams
In a past life, I was responsible for Network Operations for the third largest Internet Service Provider in the United States. At that time, we provided Internet access via dial up phone lines to more than five million customers. The team, which I led, was responsible for managing a budget of nearly $400M in telecom vendor contracts. Our department’s goals included shorter-term contracts, low rates and on-time delivery of provisioned phone lines. The phone companys’ goals included longer term contracts, a maximization of revenues by charging Internet Service Providers as much as possible and providing services to a rapidly growing industry by maintaining the poor quality service status quo they had developed in operating a monopolistic industry for decades.
It didn’t matter where in the United States we operated and with which phone company we partnered, the Big Bell culture was ingrained and the status quo of poor service endured. Conflict rapidly developed between growing ISPs and old Bell Companies that were unwilling to adjust to the rapidly changing technological environment, meetings were contentious and politicians were forced to intervene.
Eventually, the balance of power benefited ISPs that were growing and adding jobs to the economy. Lobbyists were engaged to educate politicians as citizens screamed for improved services and lower internet costs. Busy signals and high costs soon became things of the past. The conflict resulted in laws being passed to deregulate the telecoms industry forcing Big Bells to wholesale phone services to new entrants in the marketplace called CLECs [Competitive Local Exchange Carriers]. CLECs brought competition into the market place, rates dropped, service improved, and technology advanced significantly. More customers signed up for service, modems delivered faster dialup service, and then later high-speed Internet service [DSL], cable and fibre to the home were introduced. Unquestionably, it was internet infrastructure improvements that created the foundation for the technology revolution in the United States and around the world.
In the past thirty years in Guyana there has been ongoing public angst among citizens and directed at government and companies regarding the terms of various Foreign Direct Investments [FDI], the disadvantages of monopolies and the sometimes-poor quality of service delivered to Guyanese citizens. Citizens continue to worry and rightly so, about whether they are getting value for their dollars and for the financial obligations in the form of international loans for which their children will be responsible for repayment.
My own experience identified the critical role played by all stakeholders in improving the service delivery process and highlights why understanding both sides of the issue is important in delivering value for customer money and the role it played in advancing a global technology revolution, while allowing investors to achieve a return on investment, acceptable for the level of investment risk they absorb.
The Other Side – Risks Faced By Investors
Foreign investors face significant risks in developing countries with immature or volatile political systems. One chief concern has been “expropriation risk,”–the possibility that host governments would seize foreign-owned assets.
Another risk called ‘policy risk’ happens when a government discriminatorily changes the laws, regulations, or contracts governing an investment—or will fail to enforce them, in a way that reduces an investor’s financial returns. “A World Bank study in 2004 revealed that 15% to 30% of the contracts covering $371 billion of private infrastructure investment in the 1990s were subject to government-initiated renegotiations or disputes.”
An understanding of these risks provides a window into the reasons why investors push for longer-term contracts, monopoly contracts, and high rates. The goal is to reduce significant risk by recouping their financial investments in as short a period as possible.
Another Approach To Managing Risk
In addition to monopoly contracts, many foreign companies manage their risks by building local networks to influence policy outcomes, especially in countries with weak legal systems. To turn these networks to their advantage, investors identify and engage local politicians’ power bases. Others focus on using local suppliers, employing more local employees and commit to conducting knowledge-transfer, training, and development seminars for them.
Another way to manage risk is by funding the construction of various public works, including national libraries, schools, computer labs, and multifamily housing units for the poor. As a result, citizens feel like they have a stake in the success of those companies. The more successful companies broaden their perspectives by reaching out to nonbusiness organizations that can help them anticipate and preempt consumer concerns about environmental, health, safety and other issues important to citizens.
Benefits of Foreign Investment
Foreign investments can offer significant benefits to host countries. Benefits, which include offering an employment and economic boost – creating new jobs, an increase in income and more buying power to the people.; development of human capital resources – the value gained by training and sharing experience would increase the education and overall human capital of a country; resource transfer – allowing resource transfer and other exchanges of knowledge, where various countries are given access to new technologies and skills and increased productivity – the facilities and equipment provided by foreign investors can increase a workforce’s productivity in the target country.
In the final analysis, investors take on significant economic risk but host countries should not be exploited. Investors who are committed to adding value to their host countries as they execute on their business functions eventually become an acceptable part of a country’s fabric. Others that are intent on exploiting citizens, the environment or a country’s resources in an unfair way are often labeled ‘modern day economic colonialists’ and find themselves the target of protests and political reprisal leading to significant business risk. Smart companies survey the environment and make the relevant adjustments to reduce their risks.
