- Why would the government demand diversification of ownership in private firms but resist the same for profit-making State-owned companies?
Recently, the government unveiled a licensing policy that will require telecoms firms to have local ownership of at least 30 percent within the next three years. Despite local ownership requirement regulations sounding progressive, many times they are just ambiguous.
Let’s take the case of Airtel Kenya where Naushad Merali is the local shareholder. When he wanted to dispose of significant shares below the shareholding rule of the 20 percent local ownership, he sought for an exemption so as not to be in contravention of the law. He was given the exemption because the law is ambiguous on blocking an investor who wants to cash out.
So, for a company that is not publicly listed, what exact policy problem is this regulation solving? The regulation is simply an exit barrier to investors. In fact, such laws are known to breed corruption because senior government officials use them to solicit shareholding from companies that want to enter the local market.
There is a big number of public officials who are billionaires because of these “local ownership ransom demands.” So, Kenyans should expect little from this regulation.
Some analysts have predicted that some telecoms companies will now opt to publicly list, but that will most likely not happen. Many companies are uncomfortable with the “stewardship” that comes from being publicly listed.
Stewardship means that supervision of management by informed investors – if the results of investment taken by the management do not meet the long-term needs of the business, then management always feels external pressure and ultimately risks the sack.
It is already reported that MTN Uganda has indicated that it will prefer selling a stake directly to a local pensions fund to listing its shares.
The primary reason companies opt to list their shares is to always unlock value of their business and raise new capital. In the telecoms industry, British Telecom was the first telecoms company to sell 51 percent of its stake in 1984, and it was as a result of a desire to facilitate major investment in digital switching capability.
So, unless the non-listed telcos aim to unlock value, they will not opt for public listing. And a company like Airtel Kenya which has not been a profitable venture for a period of time will be ill-informed to opt for listing because the cost of stewardship will be quite high for the management.
But the contradiction from the government comes in when it has declined to list some of its profit-making companies like Kenya Pipeline and also dilute its stake in companies like KCB, Safaricom and KenGen. Are we an economy not interested or looking to continuously grow large corporations?
For Safaricom, the government says that given its strategic importance, it will not want to be below Vodafone Kenya in shareholding, unless the latter also reduces its shareholding.
This is very unconvincing because the government already has a seat on the board. Even if it reduced or increased its stake it would neither lose nor gain an additional board seat. So its agenda will still be pushed through its representative on the board.
For Kenya Pipeline, the government says it’s not considering it for privatisation because it brings around Sh15 billion revenue in form of dividends. This is also an unconvincing explanation because even with the listed companies like Safaricom and KCB, the government still receives dividends.
For such a company that runs a healthy off balance sheet financing, it stands to raise big capital for its infrastructure investment. The Treasury may have repulsed the strategy to list it for political reasons. It’s a cash cow for political actors in government.
But the fundamental question is this; why would the government demand diversification of ownership in private firms but resist the same for profit-making State-owned companies?
Mr Watima is an economist.