By Getachew Beshahwred BA (Dist.), MBA, BFP. FCA, Cert CII, PMP
The Ethiopian government just announced that it has appointed KPMG as its transactional advisor in its privatisation of the state-owned telecom operator Ethiopian telecom. Such an announcement was expected, and no one would be surprised by the appointment of KPMG. KPMG was involved in the many privatisations of the 90’s and 80’s in the United Kingdom and it has been operating in Ethiopia for some time now. Is it the right choice? What was the process in selecting KPMG? Would or could there be a conflict of Interest for KPMG, since no doubt it could also represent or could have represented the entities that could be interested in purchasing an interest in Ethiopian Telecom? What precautions have been taken to deal with this possible conflict of interest? These are legitimate issues which the government should be able to explain.
However, the big surprise is the timing of the announcement. There was a hope that the government would take its time to consult and to allow all publicly held companies including Ethiopian Telecom, time to reorganise, restructure and become more efficient as a preparation for possible privatisation. This process would make the company more competitive, when the market opens, and it would also maximise its sales (privatisation) value. Unlike Ethiopian Airlines, there may be a case for part-privatising Ethiopian Telecom, but the timing may not be ideal. The valuation of the company should be done or at least reviewed at the end of the reorganisation/efficiency program.
Many foreign investors would be deterred or would have second thoughts about investing in Ethiopia under the current political climate. The political risk is high. Many good investors would prefer to wait and see the outcome of the forthcoming general election. If not, the government could end up dealing with the wrong kind of investors or gamblers and speculators who are prepared to take huge risks for a short-term huge profit.
The government should not be pushed into selling prized assets due to either budgetary pressures, or pressure coming from third parties outside the Country. The first is a short-term problem and the later would have its own ‘institutional Bias’. The government should do what is in the long-term interest of the country.
The second point is in the selection of a foreign advisor. Has the government at least considered the possibility of KPMG or any other advisor working with local consultants/firms? Local consultants may not be big or experienced enough to take on this kind of projects, however, they would bring a different important perspective to the process. The government should consider this point in the appointment of its second transactional advisor and other advisors.
The appointment of a Transactional advisor is one of the first steps in privatisation which is a long and complex process. The government should use this time to consult widely and consider all options.
The government has indicated its intention to privatise other publicly held companies. I suggest that the government follows the follows steps in its privatisation program.
Allow necessary freedom and independence to all publicly held companies so that they can restructure and become more efficient and more competitive. There is no direct relationship between ownership and efficiency, and publicly held companies can be as efficient as, or more efficient than their private competitors. British Airways between 1981 and 1987 (before it was privatised) and Ethiopian Airlines are good examples.
Eliminate politician’s involvement in commercial decisions, if necessary, by legislation.
Appoint able and experienced leaders (Chairpersons, Chief Executives, and Board members), require them to come up with a turnaround plan, and leave them to it.
Remunerate the leaders of the publicly held companies in the same way as their counterparts in the private sector. This is a big issue in the UK. Any reasonably high pay to senior executives of publicly held organisations, like the BBC, the NHS, Local Government or the Civil Service attracts huge indignation especially from the right-wing press. On the other hand, tens of millions of pounds paid to executives in the private sector, either as salary, bonus or dividends is barely mentioned except by some on the left of British politics and the unions. This has led to a brain drain from the public sector to the private sector.
Develop the necessary regulatory framework and build essential institutions: strong and independent financial reporting and auditing framework, strong and adequately staffed financial institutions, training institutions which should produce the necessary expertise and leadership, an up to date company law/ legal structure, employment laws protecting workers rights, an independent judiciary and a stock exchange. Allow enough time to do it properly
At the end of the above process which could take 3-5 years, decide on each company: The decision could be one of the following:
keep in public hands
Keep in public hands but open the market for the private sector
Public Private partnership, or
a combination of any of the above.
The government should also consider holding a Golden Share.
Getachew is the Managing Director of GB & Co limited, London and can be contacted at firstname.lastname@example.org