Monday, September 27, 2010

Too Big to Fail?

Embattled market leaders Kenol and Safaricom got some reprieves last week.

In the case of Safaricom, it was signaled in the form of a public complaint from rival Zain Kenya CEO (and which he followed up in a letter to the President) alleging that the communications industry regulator altered its new rules to shield Safaricom.

At Kenol, the Permanent Secretary for Energy announced a settlement of the dispute between Kenol and the Ministry (Kenya Pipeline Company, Kenya Pipeline Refineries), which Kenol echoed that with a cautious statement.

Kenol, Safaricom, and probably Kenya Airways and Equity Bank (with 5 million bank account holders) have reached a status of being too big to fail. They are huge tax-payers (Safaricom, Kenol), models of privatization (Kenya Airways), critical to the country and region (Uganda was affected by the Kenol shutoff) or source of international pride (Safaricom’s M-pesa)

The government goes out of its way to listen to these companies and protectthem and make rules that will assist them in their growth. In the case of Safaricom, cracking down on them does not guarantee that Zain or Orange will fill the gap in the near term. The price war started by Zain has been called unsustainable by the Safaricom CEO and that language is also creeping into government circles

2 comments:

kenopalo said...

I am a believer in both the market and the virtues of a corporatist model of development. The government should regulate with both procedural concerns (competitive capitalism) and outcomes (long term effects on market structure) in mind. President Kibaki's administration has done a lot on the market side of things (hence the rising number of Kenyan firms that are poised to expand throughout the region). I think it is about time he focused more on improving the lot of Kenyans through responsible corporatism.

Juu said...

I do not think safcom CEO could have said anything different than that Zain's move is unsustainable. What's unsustainable is Safcom's crazy margins. At some point the chickens have to come home to roost.

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