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Privatisation Strategy
Historically, the telecommunications sector developed in all countries in the world without exception between the 1930s and 1970s-1980s in the form of monopoly-based fixed-line network operations. In numerous countries, these operators were public operators, and even civil service departments in frequent instances. Since the 1970s-1980s, the idea - that monopoly management of these telecommunications operations is no longer suited to their technical and economic context - has prevailed.
Management Contracts Benin,
Botswana, Guinea, Madagascar
Concession Guinea-Bissau
Demonopolize Burundi,
Ghana, Guinea, Madagascar, Mauritius, Namibia, Nigeria, South Africa,
Tanzania, Uganda, Zaire
Divesture Sudan
“Demonopolize” primarily refers to the mobile telephone sector, where a multitude of operators were allowed in the early nineties. My main observation is that after more than a decade of conditional ties, the effect regarding divesture was rather meager. The Bank (The World Bank 1996, iX) concurs in the executive summary that: ”But progress to date has been slow, with the region accounting for only a tiny share of the more than 1,100 private infrastructure projects undertaken around the world since 1984.”
Four years later- in the year 2000 - this picture had partially changed. Seven countries had then sold off more than 50% of their incumbent operator. Six had initiated a privatisation process, nine were envisaging it and thirteen had not yet adopted a definitive position, out of the 40 countries south of Sahara and north of South Africa (the following based on BIPE 2000).
Four reference operators had emerged in the continent of Africa:
Deutsche
Telekom, mainly through its subsidiary Detecon
France Telecom
Malaysia Telekom
Portugal Telecom
Thus, characteristic of the privatisations in SSA was that privatisations were still limited to a minority of countries in SSA and that the incumbent operators had primarily been acquired by companies based outside SSA.
Figure SEQ Figure \* ARABIC 1 – Privatisation of incumbent operators in Africa (BIPE 2000, 81)
Behind these figures for successful privatisations also hides the figures for failed or stalled public sector reforms. An unpublished World Bank report from 1994 documents a general failure of privatisation processes mainly due to low ownership of the process amongst low-income borrowers.
An examination of the position of African countries shows that (kindly see below), in terms of the installed base of main lines, development in the 1990s presents considerable disparities from one country to another, as some countries have seen their installed base decline while others recorded growth in excess of 300%, usually off exceeding low bases. The countries whose installed bases have stagnated are obviously those whose political and economic situations have experienced serious problems during the decade: Liberia, Rwanda, Democratic Republic of the Congo, Angola, etc.
The countries whose situation has improved the most are often small countries where the network deployment cost is much lower: Cape Verde Islands, Mauritius, Equatorial Guinea, Gambia, etc.
Figure SEQ Figure \* ARABIC 2 – Development of the installed base of main lines in Africa (BIPE 2000, 34)
The only significant examples in the field, Ghana, Togo and Senegal, recorded growth of over 300%, which was more recent in the case of Ghana, and reflects the positive effect of deregulation initiated in the country. Senegal has also privatised its incumbent operator and Togo offers results that can partially be attributed to the public access policy adopted in this country (also true in the case of Senegal).
It is also interesting to analyse countries that experienced more median developments:
Among countries with growth of between 200 and 300% between 1990 and 1998, we find two countries, Sudan and Guinea, whose recent improvements are very probably the result of privatising the fixed-line operators. However, this factor does not explain the progress made by other countries, which must also be interpreted relative to the 1990 density.
Figure SEQ Figure \* ARABIC 3 – Development of the installed base of main lines in Africa (2) (BIPE 2000, 35)
In the beginning of the nineties the (former) public sector operator was considered to be a national flagship, which would provide the backbone for the national telecommunications development. Policies, strategies and licence construction were based upon this assumption, which was anticipated to succeed with the help of national and donor financed investments.
For the African states the average penetration level only grew from 0, 4 in 1990 to 0,75 pr 100 inhabitants in SSA in 2000.
Exceptional levels of service provisions (measured pr 100 inhabitants) are shown by a group of small countries (Cape Verde, Reunion, Seychelles) and Botswana (9,2) and Mauritius (23,6). Some specific improvements were recorded from 1991 to 2000 in Guinea (from 0,2 to 0,8), Ghana (from 0,3 to 1,2), Senegal (0,6 to 2,2) or Ivory Coast (from 0,7 to 1,7).
The overall and general meagre results as measured by ITU (ITU 2001) for the year 2000 are however obvious across the board whether reforms have been implemented or not, in Uganda (0,2), Togo (0,9), Mozambique (0,4), Tanzania (0,5), Ethiopia (0,4) or Nigeria (0,4).
After two decades of conditional ties to the world’s most indebted nations and after a focus on public sector reform by donor countries and with investments from the world multinationals, these results appear utterly insufficient as service provision to the population from the national main operator.
The World Bank report does provide a number of convincing explanations for this picture (The World Bank: 1996) by pointing to the following opportunities / conditions for progress regarding privatisation:
Low
per capita income and low economic growth may make infrastructure markets in
Africa appear small and unattractive to potential private investors.
In
most countries of SSA the relevant legal and regulatory frameworks remain at an
early stage of development. Many governments have weak regulatory capacity,
reflecting a limited tradition of adhering to the rule of law, a scarcity of
skilled resources and widespread corruption. The Bank advocates that competition
shall be established even for former monopolistic production. If transitional
monopolies are to be condoned, they should be defined as narrowly as possible
and with prices of substitute services fully deregulated.
Political risks include government reneging on its regulatory commitments on
tariffs and other matters, convertibility or transfer risk and war and civil
disturbance, expropriation.
Given the under-developed nature of local capital markets in most of the region,
in the short- to medium term most private investments will likely be financed
from retained earnings, owner’s equity and/or foreign borrowings. The Bank finds
that there is unexploited potential for mobilizing local capital for private
infrastructure projects in Africa.
To this may be commented that further structural constraints exist due to the general segmentation of markets. Thus, a World Bank survey (Schulpen and Gibbon 2001, 36) shows that as many as 87,7% of all enterprises, with more than 100 employees, are owned by non-indigenous groups.
Regarding the first conditions however, since the mid nineties the demand for services has also been rising due to a general growth of the African economies of 4 per cent a year (ITU 2001).
The sector reforms for the telecommunications sector ensured a tremendous expansion in service provision in Latin America and South East Asia. The approach in Latin America entailed privatisation while in East Asia it was based on Build Operate Own (BOO). In Latin America local capital was mobilized in pension funds and the funds of overseas operators and in East Asia private project capital could be mobilized together with loans from overseas banks. A tremendous expansion in network provision followed. Thus only Thailand managed around 4 million new lines through BOO.
In contrast, successful privatisations in the African telecommunications sector entail foreign ownership or domination. This can be compared to a different picture for service provision from mobile communications.