Beyond the Noise: A Financial & Economic Rebuttal to Safaricom Divestment Criticism

The planned divestment of a 15% Government of Kenya (GoK) stake in Safaricom Plc to Vodafone Kenya, a subsidiary of South Africa's Vodacom Group, has ignited predictable political criticism. Kiharu MP Ndindi Nyoro, for instance, has publicly challenged the deal, using terms like "underselling" and alleging an "illegal loan." While public scrutiny is essential for good governance, this particular line of criticism reveals a fundamental misunderstanding of sophisticated corporate finance, market dynamics, and the government's pressing strategic fiscal imperative. The transaction should be seen not as a political failure, but as a prudent, value-maximizing fiscal manoeuvre necessary to establish Kenya's long-term financial stability.

              Hon John Mbandi-CS Finance, flagged by other officials during the annoncement of divestment of GOK 15% stock share in safaricom to Vodacom PLC

Safaricom’s Ownership: A History of Strategic Evolution

To fully grasp the current sale, one must first understand Safaricom's complex ownership history, which has never been exclusively Kenyan. The company was founded in 1997 as a wholly-owned subsidiary of the state-owned Telkom Kenya. By 2000, Vodafone Group PLC (UK) acquired a 40% stake and management control, initiating the company's hybrid private-public architecture. This era was marked by the controversial Mobitelea saga (1999-2000), where Vodafone passed a 10% stake to the shadowy, offshore Mobitelea Ventures Ltd without public transparency. This arrangement raised serious legal and corruption questions, highlighting the political complexities embedded in Safaricom’s very origins. Following the resolution of these issues, the ownership structure paved the way for the landmark 2008 Initial Public Offering (IPO).

In that IPO, the GoK offloaded 25% of its shares at Ksh 5.00 each. Although the IPO was heavily oversubscribed, the subsequent global financial crisis and local market dynamics caused the share price to plummet well below the initial offering price, reaching a historical low near Ksh 2.50. Safaricom’s later, incredible share price ascent—peaking around Ksh 45 in mid-2021—was driven almost entirely by the explosive and sustained growth of M-Pesa. The price later corrected due to general "risk-off" sentiment in emerging markets and the high capital demands of the ambitious Ethiopia venture. Following the IPO, the ownership structure settled with the GoK holding 35%, Vodafone/Vodacom 40%, and a public float of 25%.

Safaricom's Profitability & FinTech Valuation

Safaricom is a classic illustration of a modern, vertically integrated Telco-FinTech hybrid, possessing superior operational efficiency as evidenced by its consistently high EBITDA Margin (Earnings Before Interest, Tax, Depreciation, and Amortisation). Its rising Average Revenue Per User (ARPU) is primarily driven by deep mobile data penetration and, crucially, its thriving financial services arm. Safaricom’s strategy has evolved M-Pesa beyond simple transactions into a FinTech 2.0 ecosystem encompassing lending, insurance, and wealth management. Critically, M-Pesa revenue now accounts for approximately 45% of Safaricom Kenya’s service revenue, proving that the vast majority of its growth and future potential lies in financial technology, not traditional telecommunications.

The company's expansion into Ethiopia was a massive undertaking, costing over $3.2 billion in license fees and network rollout. It initially incurred steep losses (over $325 million in FY2024) due to high Capex and infrastructure costs. However, the venture has quickly acquired over 11 million customers, and the launch of M-Pesa Ethiopia in 2023 unlocked a vast, unbanked market, leading to triple-digit service revenue growth. Though currently in a planned high-spending phase, the project is expected to reach EBITDA positivity and deliver enormous long-term returns. Furthermore, Safaricom recently issued a successful KES 15 billion Green Bond (with a KES 5 billion green shoe option), a sophisticated financing tool to fund its sustainability efforts. This move diversifies its funding base and aligns with global Environmental, Social, and Governance (ESG) investor mandates.

The GoK Divestment: Rationale Over Populism

The prevailing critique from figures like Ndindi Nyoro, which suggests either an unbundling of assets or a Secondary Public Offering (SPO), fails to address the strategic urgency of the government’s fiscal needs.

The GoK chose the private block sale and dividend monetization for strong, justifiable reasons:

1.     Price Certainty and Premium: The government secured a price of Ksh 34 per share, a robust figure that represents a significant premium (up to 33.9% above the 180-day VWAP). An SPO, conversely, would carry substantial underwriting risk and market saturation risk, potentially driving the final price below current market rates.

2.     Immediate Fiscal Mobilisation: The deal generates a massive KES 244.5 billion immediately. This rapid, non-debt capital injection is crucial for stabilizing the nation's finances and seeding critical long-term funds—a necessity that a slow, months-long SPO process cannot fulfil.

3.     Consolidation of Strategic Control: Increasing Vodacom’s stake to 55% is essential for streamlining global strategy, enhancing operational efficiency across the Vodacom Group, and encouraging future Foreign Direct Investment (FDI) into both Kenyan and Ethiopian operations.

4.     Strategic Conditionality: The negotiated block sale allowed the GoK to impose strategic non-financial conditions—such as demanding the retention of a Kenyan CEO and Chairman, and protection for local supplier contracts—conditions that are impossible to enforce in a faceless, open-market SPO.

5.     Risk Mitigation of Ethiopian Exposure: By strengthening its strategic partner, the GoK de-risks its exposure to the initial capital losses in the Ethiopian market while retaining a 20% interest to benefit from the eventual success.

The demerits of Mr. Nyoro's alternative proposals are clear: Unbundling (separating Telco, Towers, and M-Pesa) is a complex, multi-year regulatory and legal nightmare that would create market uncertainty and delay revenue for years. An SPO of 15% (over 6 billion shares) risks overwhelming the market, causing a "drag" that could result in a much lower final price and inflicting the same speculative pain on retail investors seen after the 2008 IPO.

Seeding the Future: The Infrastructure and Sovereign Wealth Funds

The most crucial financial justification for this sale lies in the dedicated use of the proceeds: they will form the seed capital for two transformative funds. The National Infrastructure Fund (NIF) will provide non-debt financing for priority national infrastructure projects (e.g., energy, transport). By using asset monetization proceeds rather than external, high-interest commercial loans, the NIF will fundamentally reduce Kenya’s debt service-to-revenue ratio, improving the sovereign credit rating and freeing up future budgetary resources. Simultaneously, the Sovereign Wealth Fund (KSWF) will act as a generational savings and investment vehicle, providing a crucial fiscal buffer against future global economic shocks. This strategic move marks a decisive pivot from debt-financed consumption toward asset-backed, self-financed development.

This strategy is not unique; it has credible global precedents. Governments worldwide, including Germany (Deutsche Telekom), Malaysia (TM/Celcom), and the UK (British Telecom), have successfully shed non-strategic stakes in telecommunications companies through various offerings to foster market competition, enhance efficiency, and fund national priorities.

The GoK’s decision is therefore not an act of desperation, but a calculated, fiscally sound execution of a strategic privatisation mandate that secures maximum certain capital, mitigates market risk, and strategically lays the foundation for long-term, debt-free economic growth.

Innocent Musumbi