Africa: Privatization of Africa's State-Owned Telcos Is Stuck in a Rut - Potential Assets Are Wasting Away

9 November 2018

London — Two recent privatization announcements have re-ignited interest in whether momentum might be returning to what has seemed like a stuck process. Russell Southwood reviews where the process has got to and why it remains important.

Only 18 out of 52 African countries have privatized their state-owned telecoms company. Of these, three are only partly privatized. The state-owned companies - a mix of fixed line and mobile operations - used to be the incumbent operators dominating their markets.

Many African Governments protected their padded workforces and often tipped the regulatory rules firmly in their favor. In competitive markets, after a struggle of several years, they handed over this dominant position to one or more of the mobile operators.

With the increasing focus on data, some of these state owned operators have interesting commercial assets (like extensive fibre networks) and new potential markets like Fibre-To-The-Home and Wi-Fi hotspots. So why aren't African Governments turning their former state incumbents into lively, privatized companies that can generate new, market oriented jobs?

Because unfortunately, they reflect the culture of Government found in various African countries. In several countries, they have and continue to act as a cash till for the ruling politicians, particularly at election time.

They are also plentiful sources of patronage. In the days when Telkom Kenya was still fully Government-owned, it had thousands of messengers on its books. Before Ghana Telecom was privatized it had 10 regional companies and 12 layers of management.

Even a relatively efficient incumbent like BTC in Botswana found that it could cut its management layer from 130 to 90 as it sought to behave more commercially. More recently, an agency in Benin found that the state telco had increased the number of its managers and their salaries, even as it sunk deeper into debt.

Innovation - which is not always found in abundance amongst the continent's mobile operators - is almost non-existent in state-owned telcos. The brutal collapse of Sudatel's attempts to launch itself as a pan-continental operator demonstrate how hard it is for a state-owned telco to play the market. Telecom Namibia's similar attempts to invest in Angola were abysmal.

Corruption is often endemic. The most staggering example was the state-owned telco Manager in DRC responsible for building the country's landing station who simply walked off with the money. But precisely because they provide employment to so many people and offer plentiful opportunities to divert funds, privatization of state-owned telcos becomes enormously political.

Most privatizations come with a poison pill. When MSI/Celtel's purchased Tanzanian fixed line operator TTCl it discovered that there were unpaid bills going back several years, many of which were owed by the Government. Arguments over it took four years to sort out.

At least 5 privatizations have failed and the company has gone back into public ownership. Gambia's former President sold Gamtel to a businessman who had never been involved in telecoms before and simply repossessed it when that seemed to fail. Something very similar happened with SotelTchad.

The Rwandan Government took Rwandatel (renamed Terracom) back from American entrepreneur Greg Wyler and the Niger Government repossessed Sonitel from its Chinese owners. Utl in Uganda and Zamtel were taken back into public ownership as Libya's Lap Green collapsed during the civil.

In one case, the privatization did not fail but can hardly be considered a great success. In Nigeria, ntel was sold to local investors and they have struggled to raise the kind of capital required to expand. As a result, the company is a shadow of its former self almost irrelevant in market terms.

Nine countries have plans for privatization but the most recent two (Ethiopia and Togo) only want to part privatize: both appear to have agreed under pressure from international bodies. Four of these nine countries have announced plans that have never been implemented: for example, Botswana's plans date back to the early 2000s and always seem to be just around the corner.

This leaves 4 countries where they have been policy discussions like Mozambique. However, these recurrent discussions never translate into plans. A remaining 19 countries have no current plans to privatize. For five countries, they face issues that make privatization impossible or unlikely: Guinea (the incumbent Sotelgui went bankrupt); Central African Republic (civil strife); Libya (civil strife); Somalia (the incumbent is long-gone); and South Sudan (which never had an incumbent).

The World Bank has worked over twenty years or more to address these issues. Initially, it focused on simply trying to privatize. But as it became clear that some countries would simply not do it, they started to try and persuade Governments to separate out the their operations into wholesale and retail prior to privatizing the retail end.

They have also sought to create public-private partnerships to run fibre backbone networks, for example in Burundi. On a similar basis, they have financed a number of international landing stations. But although these have opened new opportunities, often Governments (Gambia and Sierra Leone are examples) have sought to roll-back arrangements in order to defend (as they see it) the incumbent telco. Overall there has been some progress but at best the results have been mixed.

So the challenge remains as many African Government telcos are not really ready for a more digital future. They lack up-to-date networks and the skills required to compete in this arena. Being unable to modernize this key asset in any country will make it less competitive.

Governments often fail to realize the high cost of capitalizing things like fixed and mobile networks. It is often easier to do nothing than find the will to sort the problems out. But in these circumstances, whatever assets the state-owned telco has will simply waste away and be worth less in the future.

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