Privatization is a compelling alternative for most state owned companies in Africa

The concept of privatization has been frowned upon by many African governments even though in many cases, this is the best solution to providing efficient services to the people. The government of Ethiopia has recently decided that the best way to take the telecoms sector forward, will be to split Ethio Telecoms into two business units in anticipation for the planned privatizing of the companies. The current telecoms company has been marred by inefficiencies that left it requiring over $3 billion to expand and modernize.

How the sector was left to deteriorate to this stage is spilled milk and the decision made by the current administration is applauded. The compelling innovation and diversity required in the communications and telecoms sector is unquestionable given the rate at which the sector is contributing to the 4th industrial revolution. Only the private sector can innovate in this sector as most thought leadership and entrepreneurship emanates from the private companies. The topic of debate should not be whether the telecoms sector should be privatized in Africa, but rather in what form of execution of the privatization structure. In South Africa, the partial privatization of Telkom has provided shareholder value to both the private sector and the government, and has improved fibre-rollout across the country thus improving access to technology.

The privatization of state owned companies does not have to be implemented through a public listing alone. There are other forms of transactions that produce efficient outcomes. Private Equity companies are better at ensuring that companies function efficiently in order to generate good returns from assets. This can come as an advantage in partial privatization transactions where in most cases the government is trying to get good value for money coupled with a sustainably cheaper service provided. Therefore, Private Equity companies can play a role in ensuring that the service is cheaper through local content and a lean management structure.

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