In Ethiopia, the next big item for sale is the Ethio Telecom. The Prime Minister is excited about it, his advisors are committed to it, and the World Bank is doing the advising. The justification for privatization, in this case, the transfer of public asset to international private investors, is that these private companies do better work, cheaper and more efficiently than the government. In theory, the idea of privatizing public goods and services to reduce costs makes sense. There is a deeply ingrained belief that privatization – selling off or otherwise abandoning a particular activity, and let the private sector handle it – leads to a smaller government that will reduce costs to the taxpayers. But do private companies really do a better job than the public sector? Does privatization really save the government money?
In a 2017 article the Australian analyst David James wrote “It is increasingly evident how pernicious the privatization myth is. Two recent examples have underlined it: the failings in Australia’s privatized energy grid and the usurious pricing in airport car parks. Both examples demonstrated that it is folly to expect a public benefit to inevitably emerge from private profit seeking.”
Over the last decades, there have been numerous examples that prove privatization has resulted in higher costs and consequences when the government turns over public services to a for-profit company. Take the case of Kenya Telecom – and here I will let you read a 2012 article by The East African
Telkom Kenya was privatised at a huge social and economic cost. When the privatisation process started in 2005, the company had a total of 17,480 employees. In 2006, it implemented the biggest retrenchment programme in Kenya when the company sent a total of 7,307 workers home at one go.
Several more have been sent home since. The upshot is that an organisation that used to employ thousands of citizens now has a workforce of a mere 1,649.
Billions were spent on the process of privatising Telkom Kenya. The process of restructuring the company and unbundling it from Safaricom cost Ksh84 billion.
The government had to pay Ksh8 billion ($96 million) towards offsetting the liabilities of the pension scheme. It also undertook to pay a Ksh5.8 billion ($69 million) loan advanced to Telkom by a consortium of local banks to meet retrenchment costs. In all, the government had to pay Ksh13.8 billion ($166 million) in retrenchment costs.
Furthermore, the government undertook to pay Ksh15 billion ($180 million) in tax arrears to the Kenya Revenue Authority.
All this was done in the name of cleaning up Telkom Kenya’s balance sheet to prepare it for privatisation. Clearly, the experiment has not worked.
The political support the company continues to enjoy despite the fact that the privatisation project has not met its objective will no doubt fuel suspicions about the ownership of the company and its links to the political elite
On paper, the Kenya government with a 49 per cent in the company, is technically a minority owner. Yet this is not the picture you find when you examine closely disclosures in the accounts of France Telecom.
For instance, in its own accounts for the year 2010, France Telecom discloses that it owns only 40.3 per cent of Telkom Kenya, implying that its stake is, in reality, smaller than the government’s shareholding in then company.
It is clearly a very convoluted if not complex shareholding structure. Technically, the majority 51 per cent stake is in the hands of one entity known as Orange East Africa, a special purpose vehicle created by France Telecom and a Dubai-based private equity firm, Alcazar Capital.
France Telecom declares in its accounts that it owns only 78.5 per cent of Orange East Africa. Alcazar Capital says it invested $59 million in the deal, putting its stake at 15 per cent.
Clearly, the mathematics just doesn’t add up.
Now let’s go back again to Kenya, and look at the first airline ever to be privatized in Africa: Kenya Airways (KQ). In 1995 KQ was Sub-Saharan Africa’s third-largest airline when privatized (advised by IFC). Today it’s facing “imminent collapse”. We read that overseas banks have even carried out inspections of Kenya Airways’ planes in preparation for repossessing them, should new financing not come through for the airline.
Basically our neighbor’s experience in this area has nothing to envy.
Unable to find a fatal flaw (emphasis on FATAL) in our telephony service network or even our airline, the opponents of public service forces manufactured a fake flaw: the ‘debt’ flaw. By cooking the books with this false entry, the public telephony opponents have been able to wail that our Telecom is broke and continuing to bleed money, endangering taxpayers with a massive bailout. Who would believe that the Telecom monopoly in Ethiopia today is losing money, unless it was purposely set to do so (i.e. corruption, inefficient management, money laundering, fraud etc.)
There are several fallacies in the pro-private business argument. One is the claim that business is efficient whereas government is not. It is true that government is often not especially efficient, but that does not mean the converse applies. Business is often spectacularly wasteful to the extent that most companies go out of business within a decade if they are subject to genuine competitive forces. That, indeed, is why purchasing public assets is so attractive: competition is either weak or non-existent.
So why is this Prime Minister, his minister of finance, and supporters keep flinging this efficiency and ‘debt’ falsehood far and wide? Listen to yourself, you too have been caught up in their fairy-tale, you too have swallowed it whole and routinely repeat it unedited and in unison.
We all understand the Federal Government has an unprecedented national debt of almost USD 30 bl. All measures to improve the situation, including privatization, must be on the table if the country is to prosper. At the same time, those drivers of privatization should recognize that some services and assets cannot be outsourced or sold without drastic harm. I hope that the privatization myth, which has dominated over the last 5 years here in Ethiopia and perhaps some 35 years or so globally, will increasingly be exposed as the scam it is. Today there are push to re-nationalize Kenya Airways in Kenya, British Rail in the UK (read the latest about British Airways), and in many other countries. When these means of production are socialized the benefits grows to all, including all businesses. Now, there are certainly instances where choosing privatization makes sense. The privatization of government breweries was one good example; the privatization of government owned hotels was another one. There were also some lesser businesses that may have benefitted by privatization.
So let’s not get absorbed by the privatization mania, and the willingness of politicians to pander to privateers’ sentiment. There is no reason for Ethiopians to tolerate such a degree of nonchalance about ownership and control over vital infrastructure and public services. We should resist this plan, stop this so flagrant rip-off that’s being presented as our only option….before it’s too late!
DECONSTRUCTING THE PRIVATIZATION SCAM – A VERY BRITISH DISEASE
CEO of Nyala Insurance honored as “CEO of the Year” on African Insurance Award
Yared Mola, Chief Executive Officer of Nyala Insurance S.C. (NISCO) has received an award from the African Insurance Organization (AIO) for his unparalleled leadership capability and outstanding contributions to the insurance industry.
Upon the 46th Conference and Annual General Assembly of the African Insurance Organization which took place from 9-12 June 2019 at Emperors Palace in Johannesburg, South Africa, Yared has been awarded as CEO of the Year 2019 among other African Insurance chief executives officers.
The panel of judges who comprises of highly renowned industry captains from all regions, sectors or subsectors of the insurance industry selected the winners after a comprehensive assessment and ranking of the nominees shortlisted from each category of awards. The four categories of awards are the Innovation of the year; the Insurance Company of the Year; the CEO of the Year and the Insurtech of the year.
In view of that, the panel of judges shortlists CEOs of African insurance companies who have led a profound change within a business through strategic vision, their roles to the sector through personal initiations with stakeholders and the insurance market to effect a noteworthy change to boost the company’s performance and outstanding contribution to the success of the industry.
In line with the above criterion, the panel of judges has shortlisted five best insurance chief executive officers for the year 2019 African Insurance Award from Sudan, Egypt, Ethiopia, Kenya and Côte d’Ivoire. Accordingly, Yared Mola has been honored as CEO of the year for his remarkable achievements and contributions in leadership excellence during the year. He is also the first CEO in the history of Ethiopian insurance industry to receive such a highly regarded award.
Yared Mola won the CEO of the Year awards by the transformation and re-orientation of the business philosophy as well as the objectives of Nyala Insurance Company towards customer intimacy and risk management solutions rather than merely selling insurance policies, a strategy which saw the company achieving sustainable growth in many aspects of its operations.
Headquartered in Cameroon, the African Insurance Organization (AIO) was established in 1972 as a non-governmental organization with the objective of expanding, developing, and promoting inter-African insurance cooperation so as to reinforce a healthy insurance and re-insurance industry in Africa.
More robust trade relations between Russia and Africa predicted
Africans and their Russian counterparts should be looking forward to an increased and very robust trade relationship in a mutually beneficial atmosphere by the year 2023.
This was delivered by some experts at the 2019 African Export-Import Bank (Afreximbank) Annual Meeting held in Moscow, Russia on Thursday.
They predicted that the trade turnover between Russia and Africa would double within the next three years.
Kanayo Awani, the Managing Director of Afreximbank’s Intra-African Trade Initiative, said the total export volume of both countries in 2018 grew by 18 percent and reached 17.5 billion dollars.
He said the volume of their non-energy non-commodity exports within the same period also grew to 14.3 billion dollars.
According to him, Egypt, the Republic of South Africa, Zambia, Angola, Algeria, Nigeria, and Kenya are key African consumers of Russian non-commodity exports.
The Chief Executive Officer of the Russian Export Centre (REC), Andrey Slepnev said “the African continent currently has enormous potential as a sales market. Many African countries are enacting economic reforms, demand is growing for high-quality and competitive products.”
“Russian businesses are interested in this niche, and our goods are already competitive in terms of price and quality. We plan to increase export volumes in the next few years,” he added
According to Slepnev, a Russian Industrial Zone is currently being built in Egypt’s Suez Canal Economic Zone which is the first such infrastructure mega project inaugurated by the Russian Export Centre.
“Residents of the industrial zone will have several key advantages: proximity to vital transport canals, a number of trade agreements with Egypt, maximally simplified business regulations, and a single point of contact for solving any problem or addressing any issue. In the next five years, this 525-hectare area will be transformed into a comprehensive industrial park for Russian companies.”
Zamzam starts selling shares
Zamzam Bank share sell attracts several including the diaspora, who is privileged on the latest law to participate in the finance industry.
As of Friday June 21 the bank that was the first for interest free banking has offered one billion birr worth of share sells.
According to Nassir Dino, who is one of the organizing committee members, the interest of the public to get shares on Zamzam is very high. “As of the beginning we have attracted several interested potential investors locally and the diaspora,” he said.
If the bank sell shares for Ethiopian born foreign citizens it would be the first since the government allow them to invest on the sector.
The bank has offer one billion birr worth of capital with half to be paid that would meet the requirement of the National Bank of Ethiopia (NBE), the financial regulatory body. A bank needs to fill a half billion birr paid up capital to start business.
The minimum share an individual shall buy at Zamzam is 50 with 1,000 birr each shares, while the maximum is limited by NBE that cannot not exceeded 5 percent of the total capital. In this case an individual can buy 50 million birr worth of shares at Zamzam.
“Our plan is to undertake the general assembly in the New Year and start operation as soon as possible,” Nassir told Capital.
He explained that the former shareholders who were refunded their capital when the bank went defunct, would be free from service charge if they buy the share now.
The under formation bank would charge three percent on very share sales. However for the share buyers who buy more than five million birr the service charge will be two percent.
According to Nassir, share buyers are at least expected to settle half their subscription.
Initially Zamzam introduced its activity immediately after the Banking Business Proclamation authorizing the establishment of interest-free banking in 2008, and sealed the formation process by the general assembly held in April 2011 but failed to commence operation after the central bank issued a new directive that push the operation to conventional banks.
Due to that the board directors who meet with shareholders in June 2011 decided to refund the mobilized capital for shareholders based on the interest of the share buyers.
On its share sales the company was able to amass an actual collection of 330 million birr as subscription, which was higher compared with the initial plan to collect quarter of a billion birr. At the time about 6,800 people buy the share that was 20 shares on minimum requirement with 1,000 birr share value.
During a meeting held on Wednesday May 22, between the organizing committee members of Zamzam and Central Bank officials, Yinager Dessie, Governor of NBE, allowed Zamzam to undertake the formation process. The green light came on the same day that PM Abiy Ahmed announced that the government will allow interest free banking in the country.
“We will open branches in every major cities in all regions as soon as we conclude the formation process,” Nassir said on the future plan of Zamzam.
“Besides that we are highly interested to make the bank a citizen’s bank and everybody should benefit from it,” he added.
The bank has also a 3 percent social fund that will be invested on social development in the society.
“From the service charge in the previous share sells we were able to include 160 people as a shareholder on the social contribution. Now the social fund that would be managed by Zamzam Foundation would provide several supports for the society that might support the health sector, education or providing as seed money for young entrepreneurs,” one of the founder of the bank said.
He said that today some people may not have the finance to join the bank but they shall provide support intellectually. “Our target is not only making shareholders reach more but such kind of social contribution concepts shall be entertained on our activity,” he explained.
Experts stated that such banking activity needs more skilled labour since it is new for the country, while other banks operates it as a single window service.
