Ghana has stolen a march on its rivals in the world of peacekeeping operations. The ministry of defence drew down in August the first instalment of a $55 million loan from Barclays that will enable it to upgrade its military equipment and secure higher-margin reimbursement from the UN for a stint in the Democratic Republic of Congo.
The arms and equipment financing enables Ghana to send in fully-equipped troops. On repayment, Ghana will still own the equipment, which it hopes to use again on peacekeeping operations. To give further assurance to Barclays, Ghana decided to escrow all receivables due from the UN for all its peacekeeping operations worldwide to its Barclays account in the UK to ensure uninterrupted repayment of the facility.
New link The deal is being hailed as a first. “The precedents are there already – either you have a financial institution linked to the state or a state linking to the UN,” says Peter Singer, national security fellow at the Brookings Institution in Washington DC and author of Corporate Warriors; The Privatization of War. “What seems to be new is the third party – an international financial institution – linking up to the UN.”
It is a sign of the times. Peacekeeping Inc requires finesse in its financings. Singer values the privatized peacekeeping business at $100 billion. He says a private firm offered to handle a UN operation in the Congo for $100 million. Halliburton has won a huge contract to run military logistics in Iraq.
As with many financing innovations, Barclays stumbled into this deal accidentally. One of its arms industry customers revealed to Barclays in Johannesburg that he had been asked to sell equipment to Accra. Barclays, quick to spot an opening, sent its man to the defence ministry. He was nearly arrested. Barclays had jumped the gun on a subject not yet fully discussed at top level. Two weeks later – since Barclays already knew about it and because it is one of only a few major banks in Ghana – the ministry wanted to discuss financing possibilities.
Ghana has a stellar reputation as a peacekeeper. It ranks fifth in terms of money paid for operations around the world. But it is clearly a more reliable UN or private-sector client than the top four. Unlike Pakistan and India it has no civil or neighbourly wars. Third and fourth spots are occupied by Bangladesh (102nd on Transparency International’s list of 102 countries) and Nigeria (which looted UN equipment during regional peacekeeping operations, and chiselled out a lucrative role in diamond and arms industries). Ghana is the global face of peacekeeping in the shape of UN secretary general Kofi Annan, and through providing the chairman and executive secretary of regional arbiter Ecowas.
Peacekeeping is very useful for Ghana: many armies use the difference between the UN rate of $1,100 per troop a month and what they actually pay. Singer points to Fiji, which has paid off its defence budget entirely by its peacekeeping activities
In December, parliament debated whether Ghana could afford to pay for all its peacekeeping efforts. Upgrading its arsenal to the tune of $55 million is a big investment for a developing country. In the end, though, it was accepted that the investment added value. More pertinent perhaps – can you afford not to be in the business? Ghana’s armed forces in the past have looked on enviably as western nations bag the better contracts with their sophisticated weaponry, while it simply provides manpower.
There is risk of course, but it is one that Barclays is willing to bear. “We had to ask how long they would last in Congo and will there be other opportunities for Ghana?” says Mark Horwood, executive head of risk management at Barclays in Accra. “There is a risk that overnight the whole of west Africa will not require peacekeeping operations but we don’t think that will happen.”
Barclays also looked at the legal status of the UN and its repayment track record. Owed more than $170 million by the US alone, it has always flirted with financial embarrassment, although there is no reported case of payment defaults by the UN.
There is an unfortunate precedent in Ghana for a deal backed by UN peacekeeping receivables. In 2000 HSBC leased back a Gulfstream private jet to Ghana’s government in a deal paid for from a UN escrow account. It has caused a public rumpus with
the present government accusing the original deal arranged by former president Jerry Rawlings of lacking transparency.
Barclays has been in Ghana since 1917 and representatives could come and go to the defence ministry, a big factor when dealings with the UN were not straightforward. Barclays’ Horwood says several issues were scrutinized, with the help of law firm Denton Wilde Sapte. “It was a huge challenge for us, especially on the PR and reputation side,” he adds. “Barclays would typically be nervous about arms and weapons financing, so we had to be 100% sure that it was all legitimate, that we had reputable suppliers, and confirmation that they can’t be used for offensive purposes in Ghana.”
The procurement of the equipment will be done under the terms of UN procurement practices, and suppliers are from European and north American sources, says Barclays.
Bankers say the deal highlights the eagerness of banks to do any dollar deal in Ghana that can clearly be repaid in dollars; and even better with the money never going through Ghana. In a stroke Barclays has taken out forex risk and country risk. The bank will also receive a 1% fee on top of a substantial margin. Barclays booked $45 million in London and $10 million in Accra.
A second reason why peacekeeping is so popular for Ghana’s government is that it enables it to keep the troops happy with extra pay, while also keeping them out of any potential mischief-making at home. Battalion 64, known for its loyalty to Rawlings, has spent most of the past two years on peacekeeping duty abroad. In August, however, a few officers were arrested and grilled about their involvement in a possible coup d’état.
