Plans by the National Treasury to flog some of its shares in Safaricom does not sound like a very good idea given that every year, the telco pays the government Sh7.7 billion in dividends.
In the last three years, during which dividend payment has remained unchanged, the government has earned Sh23.1 billion in dividends alone. Considering that it also makes money from corporate tax, Value Added Tax and other mobile money transfer fees, it means that Safaricom is one goose that has been perennially laying golden eggs for the Treasury.
That is why it does not make sense, from a strategic and long-term view, for Treasury Cabinet Secretary John Mbadi to argue that he intends to sell part of the Treasury’s stake to meet the short-term needs of one year’s Budget cycle. The government would be better off sweating the asset for long-term gain. It is, in my view, ill-advised to offload such a strategic asset to meet the fleeting needs of one financial year.
There are many other government institutions that the Treasury can put on the chopping block to raise the Sh149 billion it has targeted from its privatisation strategy. Those in the energy sector would be ideal because the capacity, say, to generate geothermal power, is so huge that allowing big ticket private investors into that market segment would make more sense.
Plus, it has the potential to reduce the cost of electricity, which will have a knock-on effect on the other economic sectors. Electricity is key in the growth of industries and baking of the national cake.
As such, allowing investors to buy into institutions like the Geothermal Development Company (GDC) and KenGen would be more beneficial to the Treasury and to consumers alike. It can also sell its stake in its oil marketer, the National Oil Company of Kenya (Nock).
At present, the Treasury controls a 34.9 per cent stake in Safaricom. This offers a good buffer for public interest because the telco cannot just raise service fees willy nilly. In contrast, reducing the government stake would expose consumers to market forces that have potential to lead to higher prices since private investors are interested more in profit, not in creating a public good at a fair price, which is what the government does.
When the government sold 25 per cent of its stake for Sh280.5 billion during the Initial Public Offering (IPO) in 2008, the economic circumstances were very different compared to today. For one, the economy was struggling after the violence of 2007 when Gross Domestic Product contracted to below one per cent.
At the time, therefore, the market needed a big sale to revive the economy, create wealth for retail shareholders and revive public interest in the stock market.
Whereas the IPO drought that has persisted since the floating of the Safaricom shares has reduced investor interest in the bourse, selling more of the same thing is unlikely to rejuvenate the economy or whet investor appetite.
That is why the Treasury must come up with a fresh and innovative offering. At any rate, Safaricom was not in the initial list of 11 government entities that had been earmarked for sale, so what has changed?
