Business Report  28 August, 2012

Business Report

28 August, 2012

By Jonathan Yudelowitz


To achieve its goal of full broadband penetration by 2020, the government says it will use Telkom – after buying back the shares it does not still own and delist it – as a strategic asset to roll out telecommunications infrastructure to improve the skills of citizens via broadband. This is an attempt at state capitalism. South African state capitalism has, however, been plagued by financial, operational and leadership crises and corruption. SAA, SA Express, the SABC, the SA Post Office, Denel and Transnet have had serious problems, none of which are experienced by their private sector competitors that either learned from their difficulties and thrived or went out of business.

Before it can credibly renationalise Telkom, the government should explain why, prior to its partial privatisation, our information and communication technology (ICT) infrastructure fell so far behind. Why do local calls remain expensive and why was Telkom, as a state-owned monopoly, allowed to be anti-competitive at the expense of business and consumers, by controlling access to an internet that is about the most expensive in the world?

Chris Gilmour, an analyst at Absa Capital, commented in a Business Day article on June 19 that Telkom had lost its monopoly on providing landline infrastructure, which it could have maintained had it acted "more cleverly" and not forced a new competitor, Neotel, to reinvent the wheel by installing a new telecoms backbone in the country. Privately run telecommunications firms, meanwhile, successfully exploited policy loopholes, undermining Telkom’s monopoly by providing affordable, innovative, state-of-the-art services like prepaid telephony, revolutionising communications and the way business is done.

Shareholders of publicly listed firms invest for greatest return on capital. The government has vague and lofty demands of universal access and transformation, yet its treatment of executives at its state-owned enterprises has generally been appalling. It goes to great lengths to find the right people, but once appointed they are second-guessed by bureaucrats and continually interfered with, drowning important decisions in red tape and missing opportunities. This is an especially serious disadvantage in ICT’s complex markets and technology, which continue to develop at an exponential rate.

Government officials behind the renationalisation of Telkom are probably inspired by the much-vaunted success of Chinese state capitalism. This is, however, characterised by a long-term investment approach supported by a centuries-old culture of civil service excellence – which we do not have. Between them, the government and the Public Investment Corporation, which handles the pensions of civil servants, own 50 percent of Telkom.

Why did they not use the money realised when Telkom listed to roll out broadband? Instead they took the money as a windfall dividend. Thus, in spite of being the powerhouse of the continent, South Africa lags in fourth or fifth place in terms of speed, delivery and cost of its telecommunications. South Africa’s free enterprise has created jobs and developed the economy and it can continue to do so. In contrast the government’s economic planning has widened the gap between rich and poor. Skills that could drive the creation of economic value are in short supply despite the costly, cumbersome and bureaucratic Setas. BEE has generated neither new economic infrastructure, like factories or banks; nor have they created new jobs.

Nedlac and the bargaining councils are too inflexible to absorb either new job seekers, deal with regional economic differences, or adapt to global competition: this has well-nigh destroyed our once vibrant textile and garment industries, thwarting creative adaptation by factory owners, eliminating thousands of job opportunities in the process.  Ironically, these problems create new opportunities for entrepreneurs – especially the well-resourced and innovative; to  provide services the government itself cannot deliver, and to clean up the mess left through non-delivery in Government’s core functions of service delivery, education, health etc. This will probably kick start a new cycle of inequality, resentment followed by seductive central economic planning process to redress these – all the time wasting South Africa’s potential for economic vibrancy and development.