HomeOpinionPolitical interference, risk major stumbling blocks to privatisation

Political interference, risk major stumbling blocks to privatisation


THE government’s ambition to privatise 15 parastatals, including fixed telephone company TelOne and mobile network operator NetOne could suffer a stillbirth due to political interference that has scuttled possible deals in recent years, analysts said.

Privatisation of the two state-owned telecoms companies could be a milestone in the ICT sector.

The services industry, particularly banking and ICT, is a major investment attraction in Zimbabwe with a potential to create jobs.

Living up to potential has been just but a dream so far, largely due to lack of capital to invest in key latest infrastructure given that the sector is capital intensive.

Although NetOne managed to secure hundreds of millions of dollars from China and development financiers, the company has lagged behind its major competitor, the Zimbabwe Stock Exchange (ZSE)-listed Econet, which has successfully unbundled fintech units under Cassava Smartech.

Government intervened, snapping up 60% of Telecel a few years back when the company started feeling the effects of undercapitalisation.

Telecel’s performance has since pointed south, losing market share and critical skills to competition. In the past year, Telecel faced operational challenges that negatively affected its network quality.

On the other hand TelOne has until recently been a typical problem child, recording huge losses. It is saddled by over US$380 million in legacy debts.

The company’s data strategy is driving revenues, although a lot still needs to be done.

Under a strategy unveiled by Finance minister Mthuli Ncube in 2018, government was supposed to scout for investors to recapitalise combined assets of NetOne and TelOne

NetOne, which owed local companies US$74 million at the end of December 2020, last week said a debt restructuring programme was underway, with acting CEO Raphael Mushanawani intimating that the mobile player was committed to settle debts.

But experts like Daniel Shumba believe the telecoms sector, like the rest of Zimbabwean industry, has political interference and corruption to worry about.

Shumba is a founding shareholder in Econet and runs a number of businesses He holds a PhD in International Business Strategy.

He said the privatisation of the telecoms sector was long overdue.

“It has to make financial sense to the extent that there is the correct valuation on the table, correct regulatory framework and technical agreements (interconnection agreements). All those conflicts need to be unpacked to ensure that cash flows reflect the correct internal rate of return,” Shumba said.

He, however, suggested that combining NetOne and TelOne assets was ill-informed given that the two companies were different.

“Their visions, opportunities are different; TelOne comes with a more historical package which is unattractive to new money.

“But it depends if its value is a giveaway. Some people might reconsider and look at what assets can be made in addition to mobile and broadband licences. They need to attach a lot of sweeteners to make it attractive,” Shumba said.

He said there was a need for streamlining NetOne.

“It’s run as a parastatal even though it’s a private entity. This has made it less competitive as it relies a lot on budgetary support and with its major client being the government which doesn’t pay its debt, so it’s financially squeezed and cannot compete effectively with other better run telecoms entities,” Shumba said.

He said the government was overly involved in telecoms, and for the wrong reasons, making the sector unattractive to investment.

“They (government) see a lot of ghosts and the only way is to control communication. Even if they privatise, there will be continued risk of interference from the state,” Shumba said.

“They are so afraid of independent players that would allow the advocacy of various voices. The political risk is high not only in terms of the national political risk, but in terms of interfering with telecommunications operations by state agents and directly through the regulator (Potraz).”

Zimbabwe has an Interception of Communications Act, which is seen as a tool to snoop on citizens.

He said exchange control regulations make it difficult for investors to repatriate dividends and management fees.

The Reconstruction Act, largely seen as a tool to expropriate assets from businessmen is still alive in Zimbabwe.

Potraz director-general Gift Machengete is on record saying that having two or more operators owned by the government does not necessarily impact their competitiveness against private players.

Corporate lawyer Webster Jiti said the government should avoid political meddling in NetOne and TelOne.

“There is a need for urgent structural adjustments when the government invests in these companies so that they can meaningfully perform. There is also a need to observe corporate governance and it is critical to wean the companies and workers from the political dynamics of the day,” Jiti said.

He argued that state-owned firms should be run efficiently and professionally.

Jiti said perhaps the government intended to put its problems under one roof, but certainly this move would not minimise the risk of these entities.

ICT blogger Toneo Rutsito said privatisation of the telecoms companies was the way to go. He said there was a need for adherence to the professional running of business and corporate governance guidelines to allay political interference.

Privatisation of the two companies will give them access to the much-needed capital so that they can retool and become competitive, Rutsito said.

“Privatisation is being stalled by what I would call a cartel of powerful individuals including serving members in the ICT ministry. These people are for instance milking NetOne and they would want to stop doing that forever,” Rutsito said.

Previously, successful privatisation stories were written in 1997 when the Dairy Marketing Board and Cotton Marketing Board were privatised to form Dairibord and Cottco.

Dairibord is listed on the ZSE and became a major counter while Cottco weaned off Olivine Industries and Seed Co.

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