South Africa has a history of underperforming state-owned enterprises, including the ‘big four’: Denel, Transnet, Telkom and Eskom. According to the National Planning Committee on the National Development Plan, these companies account for approximately 77% of employees in state-owned enterprises and make up about 91% of the asset base of the top 30 state-owned entities.
These entities have evoked discontent from the public, Eskom in particular. They have accumulated large losses, always ready to ask for a helping hand from the government. Like an absentee father who spoils his son to make up for the time he does not spend with him, our national treasury is only too pleased to support these enterprises in the form of bailout packages.
This has led to a call from certain factions for these state-owned enterprises to be privatized. A paper titled Privatisation and Nationalisation Cycles by Roberto Chang and others looks at a model built around a basic trade-off between equality and efficiency. It argues that greater equality is attained under public ownership of a natural resource or state assets, while more efficiency is achieved when the ownership and administration of the resource or company are in private hands.
The connection between ownership and the equality-efficiency trade-off is given by the set of incentives for the efforts that each regime provides to economic agents. However, it should be noted that greater equality does not necessarily translate into greater welfare. Imagine a situation where national income would be distributed equally among all South Africans. Equality would leave many worse off. Greater efficiency is required. The reality is that there are greater sets of incentives at play which drive efficiency when operating a privately-owned company, among them maximizing the profits and equity of the shareholders. The sets of incentives are not as strong in state-owned enterprises.
One source, who asked to be unnamed, says that during her time as HR Manager at the state parastatal, South African Airways (SAA), she had to deal with numerous high-level government officials dumping their family and friends résumés on her desk and instructing her to find positions for them within the organization. She says that most did not have the required skills and qualifications. It comes as no surprise that SAA is one of the most inefficient state-owned enterprises. Unfortunately for South Africans who pay taxes on their hard earned incomes, the government continues to bail out the airline with no regard for its dismal performance. These are some of the pressing issues that make privatization of state-owned enterprises attractive.
On the other hand, the breaking up of the Soviet Union led to the emergence of Russian oligarchs in the late 1980s and early 1990s, when state firms were privatized particularly in the oil, gas and mining sectors. These oligarchs emerged under Mikhail Gorbachev’s political movement for the reformation of communism, which is widely thought to be the proponent that led to the dissolution of the Soviet Union. Today, post-Soviet oligarchs usually include relatives and close associates of government officials and are among some of the wealthiest people in the world. David Satter, author of Darkness at Dawn, asserts that “what drove the process was not the determination to create a system based on universal values but rather the will to introduce a system of private ownership, which, in the absence of law, opened the way for the criminal pursuit of money and power.”
Privatization has challenges and opportunities, which if implemented properly would go a long way to correcting the inefficient operation of state-owned enterprises.
There needs to be a conversation surrounding the viability of privatizing state-owned enterprises and possible partnerships with privately-owned companies. If privatization is proven to be viable, it will go a long way to optimizing productivity and reducing costs, but perhaps more importantly it could reduce government bailouts and save taxpayers money.

Will Privatization  save us money?

Sizwe Ntsaluba Gobodo is a rare accounting firm built on small township businesses with sweat and hard work under apartheid. This year, it celebrates 30 years, and is the fifth largest firm in Southern Africa. It also works in West Africa. Eighteen years ago, it was rocked by uncertainty and despair. This was Victor Sekese’s worst day.
Sekese is living proof you don’t have to be eccentric to run this business, but it helps.
“Am I properly dressed for this interview? By the way, thank you for being late, while you were getting lost on your way here I had to catch up on something,” says Sekese, as he strides into the boardroom neatly dressed in a black suit and tie, before breaking into raucous laughter.
If it takes one man to change the world, Sekese could be that man. He has been the chief with the company since 1994, and chief executive for 18 years. You could say he is a rock of a company worth $60 million.
The foundation of this rock was laid in the turbulent townships of 1980s as South Africa burned.
“We were operating at grassroots level. We were literarily getting our hands dirty helping all sorts of township entrepreneurs, largely focusing on professional people running law firms, medical practitioners and non-governmental organization work. We helped them with books and tax matters. That’s the type of portfolio I was working on,” recalls Sekese.
In 1995, international funding for NGOs was dried up and the company had to help to close down many organizations. This was lost revenue. So, they started to knock on the doors of government parastatals and private companies.
In 1998, they got nice contracts from telecommunications and services companies. Right at this zenith, the company was shaken to its core. Sizwe Nxasana, the founder of Sizwe Ntsaluba Gobodo (then Nkonki Sizwe Ntsaluba) left his younger colleagues for a government job.
“Nxasana was appointed CEO for Telkom, a lifetime opportunity for him. Now the founder, the pillar, the icon of the firm is leaving. We were very young, we had enthusiasm, we had energy, we had vision, but we were still building ourselves in the marketplace. One thing I have learned in life, there’s no substitute for experience. When we leave these Ivy League institutions, we leave with confidence only. That is not enough,” says Sekese.
Nxasana left Sizwe Ntsaluba Gobodo bereft. There was uncertainty and clients cast doubt on the young team. Sekese, who was a manager at the time, says services firms, in their early days, are linked to founders and personalities.
“Our key clients were getting jittery about Nxasana leaving. Now we needed to be quick on public relations, we stepped up quickly without the luxury of time. We tried to emphasize the success of the firm was not premised in an individual,” he says.
It was also felt that Sizwe Ntsaluba, another founder and second in command to Nxasana, was in his shadow. In this crisis, the company took a deep breath and put its confidence in Sekese, in his early 30s, appointing him chief executive.
“This never occurred in my mind but we needed to do things and do them quickly. One is being asked to take the lead in a situation where there’s a lack of confidence in the market. I saw myself as a person to leverage the team and the philosophy was that this firm was not about personalities.”
The team rallied behind Sekese and he was sent to Harvard for a short course in leadership. This gave him confidence.
Sekese says the experience forced the company to rebrand as Sizwe Ntsaluba VSP and appoint a marketing team to change its image.
In 2011, Sizwe Ntsaluba merged with Gobodo Incorporated and renamed itself Sizwe Ntsaluba Gobodo. The new partner, Nonkululeko Gobodo, was the first black female chartered accountant in South Africa. She sold out and left in 2014.
In the past three years, Sizwe Ntsaluba Gobodo received a 5-year multimillion-rand contract from Transnet and announced plans to expand into the continent. Transnet and MTN are major clients.
Sekese says they are not comfortable as the fifth behind Deloitte, Ernst &amp; Young, KPMG and PwC.
“We are working on our Africa strategy, extending our footprint across the continent and acquiring other firms to increase our capacity,” he says.
Sekese, a chartered accountant and University of the Witwatersrand University alumnus, was an entrepreneur in his own right but believes in the power of partnership. A few years after completing articles in 1991, he started Sekese Associates in Pretoria.
“I wanted to create something big on my own but I realized that if I am alone it was going to take longer and be even more difficult. I believe in not reinventing the wheel. Sango Nxasana, my old colleague at ABASA, an association for the advancement of black accountants, approached me to join him. It was a no-brainer for me. I collapsed my little firm and got into a system that was already moving,” says Sekese.
Behind the spontaneous laughter and carefree demeanour of the father of two, lies an activist. Sekese, raised in Mamelodi township, east of Pretoria, cut his teeth in social activism at KwaZulu Natal University in his first year of a BCom degree. The university closed down because of the black students’ political activism. Sekese continued with his activism at Wits and later ABASA, where he met with Sango (meaning door in Xhosa) Ntsaluba, who became his mentor.
“He really lived up to his name. He opened doors for many,” he says.
You could argue Sekese is also a dab hand at battening down the hatches.

What Do You Do When Your Company Loses Its Mojo

Stafford Masie brought Google to South Africa and paid a hefty price. With 20 years in IT, Masie worked with some of the biggest names in the industry. And if ever you want insight into his tenacity, you have to go back to Bloemfontein in the 1990s.
“When I came back to South Africa, I worked at Telkom as a network analyst. I then became an instructor; they sent me to Cape Town and Durban to do a training course and then they sent me to Bloemfontein. It was a five-day course; I was prepared to do it and then these white guys walked in, asked if I was the instructor and walked out. They refused to be taught by someone of color. I was confused and angry; I didn’t know what to do. A lady came to me and said ‘look this is the situation, we are dealing with it, please go back to your hotel’. So I went back to my hotel distraught. I remember calling my dad and he said ‘You have to choose between two paths, you could be the victim or you could go back in there tomorrow morning and make sure you are the best of the best,’” says Masie.
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“I went back in and today some of those guys are my best friends.”
By 2006, Masie had traveled and lived abroad, and held one of the top positions at his then company Novell SA. His success, however, kept him away from his wife and children. Just when Masie thought it was time to rekindle his relationship with his family, he was given the biggest opportunity in his career – Google SA. Stafford did it all; he developed Google Search, Maps, Street View and he hired staff.
It was three years too many for his family and his personal life ‘hit the wall’. Masie was forced to leave Google SA to spend time with his crumbling family.
“I left Google reluctantly, I left Google negatively, I left Google unwillingly, I was hoping to salvage a marriage and spend time with my children again,” says Masie.
But it was too little, too late. His marriage ended.
“I got lost over all the years of giving so much to my career. I lost family and a marriage.”
Masie, the husband, lost, but Masie, the entrepreneur, was determined to win. He threw himself into his work. Masie sent shockwaves through the payment space, creating Payment Pebble, a device that turns your smartphone or tablet into a mobile card machine to receive credit or debit card payments on the go. It was a world first through his founding company, Thumbzup, founded in 2010.
“I have the greatest team, that’s what I have. So whatever anyone else is building out there, I don’t care. I’m not building a product to compete, I am building a team to be sustainable,” says Masie.
The idea of Payment Pebble came to Masie in an unexpected way that he will never forget. While waiting to see a mayor in the Gauteng province, a woman with a baby strapped to her back with a towel was rushed into the mayor’s office in tears. Stafford asked the receptionist what was going on, she explained that the council had turned off the woman’s utilities because she hadn’t made payments. The woman had the money, but wasn’t able to make the payments because she had just given birth to twins and fell ill during childbirth. With no lights or water in the middle of winter, one of the twins died.
Masie knew he had to do something.
“The Payment Pebble wasn’t a technological thing; my love for IT is personified by this. IT can solve that woman’s problem. That guy could have showed up at her house, if he had a payment pebble, he could have accepted her card payment and there could have been a full reconciliation of payment. He would have left and not switched off the lights and the child would be alive today,” says Masie.
“The Payment Pebble is a good example of African innovation solving African problems, it’s a great product,” says Mark Walker, the Regional Director for Africa at the Industrial Development Corporation.
Stafford took his idea to the banks.
“We spoke to all the banks and we realized that all the banks wanted a product. What we liked about Absa was that they wanted a partnership,” says Masie.
Four years later, the Payment Pebble is the largest mobile point of sale in Africa and is launching in one of the largest financial institutes in Australia and Latin America.
Masie believes his leadership style is the reason for his success as an entrepreneur.
“First of all, I am not a boss. I think I am more a leader, someone who is in the trenches shooting with the soldiers. Even though I may be a higher rank, I am in there with them. It is the only way I can be,” says Masie.
Lydia Paledi, an office manager at Novell SA, worked under Masie during his time at the company and has high praise for the entrepreneur.
“He was the best boss I’ve ever had and I wish he could come back.”
Despite his success, Masie dwells on his mistakes. He admits that he thinks of quitting at least once a day.
“It’s a constant battle with yourself; when you invent something, it’s nice to see it on billboards. When you pass Melrose Arch there is this massive billboard, when you look on the TV, it’s on CNN. It’s an incredible feeling but it’s short lived. You are always looking for the next big thing,”
he says.
Masie’s dream was to become a rescue helicopter pilot. Even though that didn’t happen, he is settled with his Payment Pebble and his microlight and six-seater Jabiru planes that he flies privately.

The Smile That Says  I Survived

It cost two young, bright companies millions to grab a slice of Africa’s hottest telecommunications market. But now they are both limping and left out. What went wrong?
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It was a cold June morning in 2006 and Kenya’s telecommunication sector was buzzing. EM Communications Limited had just been awarded a license as the second local loop operator in Kenya, trading under the name Popote Wireless. The company had just invested almost $6 million in rolling out operations and the mood was ecstatic. Reporters trooped to their glistering headquarters in Nairobi, each angling to interview the company’s managing director, Eric Muthi, in his boardroom overlooking Nairobi National Park.
“We are like this park. It has a lot of opportunity but within it also lurks danger,” he said. It turns out there were more dangers than opportunities.
Local loop operators (LLOs) are small telephone operators with a nationwide license, set up to increase access to fixed lines offered by state-owned Telkom Kenya. The plan was to give callers connections in their own district, but the problem was that if you wanted to call further afield, you had to go back through national operators.
Back then, Telkom Kenya was an inefficient state-owned monopoly that took months, if not years, to connect a subscriber. This led to a long waiting list, keeping telephones away from the masses.
The Communication Commission of Kenya (CCK) thus licensed 24 operators. But of the 24, only Flashcom and Popote started operations. CCK told FORBES AFRICA that others were in the process of being deregistered, after failing to open up shop.
Flashcom invested $3.6 million; Popote $6 million. Initially, business was good. According to the CCK’s 2008 report, subscribers increased from 8,481 in 2006 to 10,312 by March 2008.
The growth was because LLOs had an advantage. While a subscriber could wait for months to get a Telkom line, they could walk into a Flashcom or Popote shop and walk out with one.
But more than five years on, the dangers Muthi warned of emerged snarling from the bush.
“Popote had ceased operations at some point due to internal challenges. However, they are now back, though in a limited scope,” says CCK’s acting director general, Francis Wangusi.
And it is not just Popote Wireless. Flashcom, though still in existence, is limping.
According to its CEO, Julius Kinyua, it has shed half of its more than 4,000 subscribers.
“It has been a rough business environment but we are determined to keep going,” he says with a chuckle. CCK no longer keeps count of LLO subscribers; the last time it did so
was in 2008. The regulator was unable to comment at the time of going to print.
How did two firms go from hot start-ups to examples of what can go wrong in Kenya’s telecommunication market in five years?
The privatization of Telkom Kenya dovetailed to the LLOs’ disadvantage, but other reasons were also at play.
“Inadequate investment, interconnection challenges, unavailability of spectrum, and more importantly, the market preference for GSM mobile communication systems were their undoing,” says Wangusi.
The first hurdle they faced was negotiating interconnect rates with the then fully state-owned operator, Telkom Kenya. According to Kinyua, Telkom considered them competitors; they refused to connect LLOs to other networks, saying that the networks were “not compatible”.
A Flashcom subscriber was thus unable to call other networks. This erased the efficiency advantage they had enjoyed.
“Then the agreed-upon interconnect rate with Telkom was changed to suit it,” says Kinyua. “It meant subscribers would only be able to call within its network and it became ‘an island’.”
For interconnection, LLOs were supposed to charge $0.12, out of which $0.08 would go to Telkom Kenya. The remaining amount, according to Kinyua, was too little to meet their expenses and make a ‘decent’ profit.
Also, the technology that the LLOs got was of higher frequency and thus lesser reach than the ones given to Telkom Kenya. Flashcom got
1 900MHz, while the state company got 800MHz.
“We thus needed more base stations to roll out our services, increasing our costs further in an environment where profit margins were minimal,” he says. To maintain its bases in Nairobi alone costs almost $24,000 a month.
When Telkom Kenya was privatized in 2008, the government ceded 60% of its shareholding to European telecommunication giant France Telecom. This was a bittersweet moment for LLOs. The new management was more open to negotiation and compromise on infrastructure and interconnection rates.
However, the sleeping giant had woken, threatening the LLOs’ business model. The entry of France Telecom injected more capital in Telkom and revitalized the formerly inefficient operator, which was rebranded as Telkom Orange. The days of long waiting lists were coming to an end.
Telkom Orange courted the customer aggressively and at cut prices. Its fixed wireless subscriptions soared from 10,685 in 2006 to 154,161, according to CCK reports.
“LLOs relied too much on Telkom Kenya’s inefficiencies. France Telecom changed all that. They had better change their modus operandi or they’ll sink,” says one telecoms analyst who requested anonymity as he works in one of the major firms.
Then in 2009, intense price wars in Kenya’s telecoms sector destroyed any advantage the LLOs had by halving call rates overnight.
When LLOs realized the tide was turning, they tried to change their business model.
Popote tried to venture into outsourcing but got its fingers burnt.
It was implicated in a fiasco that involved charging potential employees for non-existent jobs, by Kenya’s Business Daily in 2008. The company still holds the LLO license, and hopes for a buyout.
Flashcom, according to Kinyua, is looking beyond the voice and leveraging on the increased demand for data as the future business plan.
The decision by CCK to give telcos a unified license has given the firm a new lease of life and it is now banking on data for growth.
“CDMA (code division multiple access) speeds are like the 2.5G and very good for internet,” says Kinyua. The CEO hopes that advanced CDMA handsets that have modern features like cameras, internet connection and smart phones may turn the tide in the LLOs’ favor. But for now, it needs hope as much as technology to survive.

Tag: Telkom

FORBES AFRICA SOCIAL MEDIA

Will Privatization save us money?

What Do You Do When Your Company Loses Its Mojo

The Smile That Says I Survived

Wrong Number—The Great Kenyan Telephone Blunder