by Jessica Redding
At the beginning of June, South Africa’s ruling African National Congress party (ANC for short) vetoed a $385 million bid by KT Corp for shares in South Africa’s biggest telecommunications company, Telkom. It appears the ANC were worried about diluting its controlling share of Telkom. The tech giant is struggling, however, and this has led to reports that the ANC are going to enact a government takeover by hoovering up shares in order to control 100% of the company and to then delist it. Nationalisation moves are often costly and controversial. Is this what the ANC really means to do with Telkom?
For a long time Telkom was the single wireline and wireless phone operator in South Africa. It has since faced competition from a number of other line operators such as MTN, Cell-C, Neotel and its former subsidiary, Vodacom. Founded in 1991, the company has been struggling in recent years against new competitors. The company is currently divided into a number of subsidiary companies and operates in 38 countries throughout the African continent. Any changes to the business by the ANC could have profound repercussions across Africa.
The government, controlled by the ANC since the end of apartheid, directly owns 39% of the company, while the state owned pension fund owns a further 11%, giving the ANC a controlling stake overall. According to a Reuters source, the government is considering nationalisation as a way to help “Telkom meet its development agenda.” It needs this change from semi-private to nationalised in order to evade strict rules laid out by the Johannesburg Stock Exchange (JSE).
It appears that the ANC view Telkom as an arm of government and therefore they do not wish to give control of the company over to someone else. As a result of this, it is believed that the party wish to buy more stocks in Telkom. Reports of an imminent nationalisation attempt led to Telkom stocks rising 8% a few days ago as traders sought to put themselves in a position to receive government money at a higher rate than they paid for the shares.
At the same time, those with shares in the company sought to profit from increased stock market interest.
Nationalisation and its opposing cousin, privatisation, are controversial topics in the world of business and government. Traditionally it is split down left and right lines in politics or those who believe in socialism and those who believe in free market capitalism. Others may say that nationalism is about government power grabbing and privatisation about corporate greed – witness the rise of the oligarch in Russia.
Naturally, trade unions leapt up in support of the government on hearing the news. Cosatu praised the government for rejecting the KT Corp deal.
Spokesman, Patrick Craven is quoted by TechCentral as saying that it was a “long-standing policy” of the trade union to support the full nationalisation of strategic companies. They consider Telkom to be one of those.
On the other side of the argument, the Free Market Foundation led by Leon Louw, are opposed to taxpayers’ money being spent on buying shares and running a company. He believes any such move will naturally take money away from more worthy areas such as welfare, education, housing and infrastructure.
Others argue that a government takeover of any project or company is ok only so long as its intentions are good and its control is relinquished when the deed is done. For these people, a company is a complex organisation of subsidiaries and related groups. It is like a sectional sofa that can be rearranged in any order. Like sectional sofas, companies cannot just be put into any order or arranged in anyway, they have to make sense and to efficient. Although it must be said that South Africa may be yet to find it’s first comfortable government.
The ANC has stated that it would like all South Africans to have access to broadband internet by 2020. In order to do this it needs a reformed and revitalised Telkom. If the government has a clear plan in place for reforming the company, then nationalisation may make sense, especially if the government can sell shares back to the markets at a profit for taxpayers.
The government, however, has poured cold water on suggestions it is going to nationalise Telkom. According to Dina Pule’s spokesman, Siyabulela Qoza, the government have not held any discussion concerning the nationalisation of Telkom. While many reports to the contrary have quoted sources from within the ANC and Telkom, it is not known who these people are and what authority they have. Only time will tell if the ANC means to nationalise the telecommunications giant or not.