MALAWI TELECOM PRIVATIZED--FOR REAL

UNCLAS LILONGWE 000104 SIPDIS SENSITIVE SIPDIS STATE FOR AF/S G. MALLORY STATE FOR EB/IFD/ODF LINDA SPECHT AND ELAINE JONES TREASURY FOR INTERNATIONAL AFFAIRS/AFRICA/BEN CUSHMAN PARIS FOR D'ELIA JOHANNESBURG FOR FCS E.O. 12958: N/A TAGS: EINV ECPS ECON MI SUBJECT: MALAWI TELECOM PRIVATIZED--FOR REAL REF: A. 2005 LILONGWE 1048 ¶B. 2005 LILONGWE 1053 This message is sensitive but unclassified--not for Internet distribution. ¶1. (U) After last-minute delays in December and January, the privatization of Malawi Telecommunications Ltd. is finally going through. The buyer, Telecommunications Holdings Ltd., put down a $1 million earnest-money deposit last week and has followed that with $10 million more this week. The total sale price is $39 million (ref A). Formal transfer of ownership is a cascading process, but with the $10 million payment, the deal is essentially irreversible from both sides. A transition management team from THL is reportedly in place already. ¶2. (U) After a brief last stand in mid-December (ref B), MTL's board capitulated when they were reminded by the finance ministry that the government was the sole shareholder and wanted to sell. As the sale reached its final approval, the board's resistance was briefly buoyed by a flurry of anti-privatization articles in the press. Although THL was slow to react in public, it quickly executed a behind-the-scenes campaign amongst parliamentarians to pre-empt any populist move to stop the sale. The case for privatization is compelling for all but the most ardent statists: with one of the lowest penetration rates in the world, a three-year backlog for new lines, high rates, and poor service, MTL was ripe for reform. Eventually, THL did state its case in the press, and it appears to have won some measure of public support. ¶3. (U) MTL's assets include a 40 percent stake in mobile service provider Telekom Networks Malawi. The other 60 percent was owned by Telekom Malaysia Berhad until late last week, when the South African Econet Wireless announced that it was buying out the Malaysian share for $24.5 million. Telekom Malaysia had been trying to sell for about a year, with no takers until now. While this deal has re-awakened some of the privatization's critics, to us it looks more like a validation of the MTL sale: no one wanted to be a business partner with the government, but with a private corporation taking over MTL, the future of Telekom Networks looks better. THL has said that it intends to sell its share of Telekom Networks. ¶4. (SBU) COMMENT: The bumps in the road to closing the MTL deal are indicative of two facts of life here. First, businesses of any size in Malawi are subject to the vagaries of political meddling, resulting in arbitrary delays for reasons that are anything but transparent. The MTL deal played this fact out on a grand scale, with the President intervening on the closing date to ensure that his state-owned media were not cut off for failure to pay their bills. While this is especially true of the privatization of a large parastatal enterprise, it is also true at other levels of the economy. The institutions of commerce and government simply do not have the weight to fend off politicians, and they suffer from random setbacks and delays. ¶5. (SBU) Second, privatization is wildly unpopular here. It is generally portrayed as a draconian measure imposed by foreigners, which delivers crucial public services and assets into the hands of businessmen accountable to no one. Somehow, "the West" is thought to profit from privatizations. In one recent editorial against the possible (and badly needed) privatization of the Blantyre Water Board, the author reasoned that a private company could poison the water supply, and everyone in Blantyre could die. In fact, in Malawi it has generally been the government that is unaccountable and the private sector that is predictable and responsive. But despite the President's official approval of further privatizations, the government done little so far has to warm the public to the idea. GILMOUR