SANE Views

Vol.3 No.8, 10 March 2003

The Telkom Privatisation Scandal

Most of us have probably been following the Telkom privatisation process with lazy indifference. The media in South Africa have also not presented this issue as being of profound economic and fiscal significance. That is how it might all have remained if Paul Malherbe, a SANE member of long standing and author of the book "A Pragmatic Approach to the Creation of Value Enrichment and Prosperity", had not presented the information offered in this issue of SANE Views. What has happened is at least as big a financial disaster as the South African arms deal.

When Paul Malherbe presents his case in terms of actual billions of rands lost to South Africa in the Telkom deal, one's eyes might well glaze over and we might lose sight of the enormity of the financial disaster in which we have been trapped. What he has now done is to present the Telkom deal in terms of an analogy of a bicycle sale gone wrong.

In terms of an analogy the folly of Telkom's privatisation is much more obvious and this is what is presented here. We shall shortly follow up on this with another SANE Views issue presenting the actual facts. We are also presenting the actual Telkom facts as presented by Malherbe in a contribution to our SANE Forum which a good number of you subscribe to. If you are not on this list you can subscribe via our website. The SANE Forum is an unmoderated list for you to offer your own point of view. We hope that the Telkom Privatisation issue will evoke a significant response from subscribers. We may well summarise these responses in a future SANE Views.

Editorial comment by Aart Roukens de Lange

The Bicycle Analogy

by Paul Malherbe

Suppose you have a bicycle and you decide that you want to get some cash for it, but you don't want to part with it altogether. So you propose to sell a 30% share in it for R60. I advise you that most people don't like the idea of owning only part of a bicycle and the market for whole bicycles is far better. You tell me to get lost, as getting R60.00 for 30% is very good. It implies that the whole bicycle is worth R200, which is more than it cost in the first place.

You make the sale and collect your R60. You are unmoved when I tell you that Joe Bloggs (a Brazilian) has just sold a similar bicycle for R1,200. You even defiantly tell me that you and your 30% partner are together going to invest another R530 in the bicycle in order to make it run better. Your share in this investment is 70%, namely R371. After a few years you find you need more cash, so you offer for sale another 25% of the bicycle. But in the meantime bicycles have not only become a lot less fashionable but bicycle parts are now also a lot cheaper, so you get only R39 for that 25%. But you nevertheless crow triumphantly over that result, as some very deserving people now have a share in the bicycle. In any event, you still own 45% of it. You are also unmoved when I point out that in this kind of market that 45% is worth only R70, so when you have sold that you will be hugely out of pocket.

Remember, you started off with a bicycle worth R200,00 and you spent R371 in cash on improving it. Total: R571. What you will have after selling off the remaining 45% in the current market is R70 for that final share, plus the R99 you got from selling off the previous 55%. Total: R169. So I figure that you have lost R402. In effect, it is as if you had paid somebody R402 to take your bicycle away!

Now I am sure that you will never voluntarily do such a thing with your own property. But this is nevertheless what our government has done in so defiantly following the IMF's prescriptions uncritically and going headlong for privatisation regardless of the consequences. This kind of thing can only happen when you are dealing with property that belongs to someone else. Also, whereas you might be able to afford losing a mere R402, the Telkom privatisation has lost the country no less than R40.2 BILLION!

Makes you think, doesn't it!