Why breaking up Safaricom would be penalising success

Tuesday February 28 2017

A person uses the M-Pesa money transfer service. PHOTO | JOSEPH KANYI | NATION MEDIA GROUP

A person uses the M-Pesa money transfer service. PHOTO | JOSEPH KANYI | NATION MEDIA GROUP 

To be successful in Kenya, it now appears, invites the wrath of those who do not necessarily appreciate the sweat and blood that goes into building a solid business. It also sends clear signals to investors that they better not raise their heads above the water lest they get noticed. Being too ambitious, it seems, is not advisable because we penalise success instead of rewarding it.

A good example is what is happening to Safaricom. A company called Analysys Mason is proposing a raft of measures supposed to level the telecommunications playing ground and “tame” Safaricom. A critical look at the proposals shows patently clearly that if they are implemented, they will have the opposite of the desired effect. They will cut the legs of Safaricom, crippling the goose that lays the golden egg. And the competition will not get relief in any appreciable manner. It is a lose-lose proposition.

I found the report long on prose but short on substance. It leans rather heavily on theoretical suppositions. It fails to take into account the local telecommunications landscape and the devastating economic and social impact the implementation of even part of the proposals will have on our society.

Safaricom shareholders have sacrificed dividends on the expectation of future earnings, knowing too well that it needs to invest heavily in the technology to keep it on the cutting edge of innovation. Such investments are what made Safaricom a leader in telecommunications and mobile money. Its growth has been fuelled by sheer tenacity, innovation, astute management, ability to identify new trends (M-Pesa, is a good example) and most critically, heavy investment in the business. Innovation that propels a firm to be a market leader in a decade-and-a-half does not come on the cheap.


From the annual report, the company had planned to invest Sh34 billion in its network this year. Last year, it made about a similar investment. Now, if the Communications Authority supports the radical proposals, it essentially means that the investments Safaricom has made will be in vain and future investments will be put on ice. Any regulatory heavy handedness will certainly have a contagion effect on other industries. The reasoning is simple: Why should I invest today, only for the competition to benefit tomorrow?

When we embark on regulation in a free market environment, where do we stop? Are we ready for the consequences? Three firms control 90 per cent of edible fats. Do we split them to create room for the competition? What about the soft drinks industry? Milk processing? Safaricom has had a huge impact on the economy yet we want to shackle it instead of supporting it to grow even further. In the last two decades, some firms that had set up base in Kenya shifted to Egypt as a result of a deliberate effort by the authorities to support them to exploit the Comesa market. GlaxoSmithKline, Cadbury’s, Colgate and others closed part or all of their factories and moved to Egypt. Clearly, we have a problem here, where we are slowly transmuting into a country of traders rather than producers. Ugandan President Yoweri Museveni is fond of saying that people in this part of the world act like midgets, arguing fervently about who is taller among them, completely losing sight of the bigger picture (pun intended). Safaricom is still a midget by global standards, but with potential to grow into a giant. We should be pushing it to push M-Pesa beyond our borders, to make it a truly pan-African initiative that leverages its globally acclaimed expertise in money transfer.


Instead, we have a proposal to hive it off, which fails to take into account the potential disruption and untold consequences it would have on the financial system. M-Pesa is a critical nerve supporting the money transfer system. It is inextricably linked to the mother company. The cord cannot be broken without jeopardising both mother and child. Ripping away M-Pesa from Safaricom would leave both in severe distress. Its success did not come overnight. This is a firm that has grown organically, driven by massive investments from shareholders.

It is important for governments to be concerned about dominance, especially as a consumer protection measure. This can be done by creating incentives for competition as opposed to killing the leaders so that smaller ones can grow.

The consultant’s report will have a deep and lasting impact on Safaricom’s operations if implemented. In recasting the field for players in the telecommunications sector, let us not cut off the nose to spite the face.

Linus Gitahi is chairman, AIB Capital and former chief executive officer, Nation Media Group.