Saturday, December 13, 2008

To bail or not to bail: the parallel between Detroit’s auto makers and Zamtel.

The debate over the wisdom of government investment in a private company is primarily focused on an argument over whether it's viability is of such public import and necessity that it's loss would be unbearable for the entire nation.

For years Detroit’s auto industry has provided the back born of the US manufacturing industry. The industry has given the middle class more than 13 million direct and indirect jobs.
And for more than 30 years, Detroit auto makers have successfully lobbied government to protect their market share against foreign car makers and tougher fuel efficiency standards.
However, as fuel prices spiraled ever upwards US consumers began to prefer foreigner cars especially Japanese cars with higher mileage.
Detroit therefore, began losing its market share and some southern states begun hosting Japanese car makers to meet the growing demand for foreign cars.

Last year, the feds finally increased the fuel efficiency standards after thirty years. The timing could not have been worse as the US economy had entered a recession leading up the crescendo of the current credit crunch that has brought Detroit, to the brink of bankruptcy.

Zambia Telecommunications Company (Zamtel) has also enjoyed government protection from foreign telecom operators for years. It has successfully lobbied the Zambian government to maintain exclusive control of the international gateway, and the domestic fixed phone lines market.
Like Detroit auto makers, Zamtel has offered Zambian consumers poor phone usage with very low mileage against spiraling charges. Consequently, Zambian consumers have preferred the efficient services of foreign telecom operators and now Zamtel hangs on the brink of insolvency.

Unlike the debate in the US where the debate is whether the US government should bail in with public funds to save Detroit and millions of US jobs, the debate in Zambia is whether the Zambian government should bail out of Zamtel ownership.

There are passionate views in both debates, as the auto bail out bill fell in the US Senate, senators across party lines shared fears of the demise of Detroit.

“I believe we must work swiftly to allow the domestic automotive industry to gain access to emergency assistance…..the risk in doing nothing is too great,” Sen. George Voinovich (R-Ohio).

“There are national security implications here, these companies also make the axles used on our military vehicles…. we have already yielded electronics and textiles….do you want to outsource the manufacture of tanks.” Debbie Stabenow (D-Michigan).

Despite ideological differences there is growing consensus that despite, it’s past mistakes, Detroit can not be allowed to fail. The Whitehouse is now expected to use part of the initial financial system bail out money to save Detroit auto makers.

In the debate to save Zamtel, there are differing views; there are proponents of unbundling and privatization while others favor further government recapitalization with restructuring.

While Zamtel‘s troubles stem from government ownership and the associated inefficiencies of government ownership regaining it’s viability is not contingent on the loss of its’ exclusive control of the international gateway. International investors might find, acquiring Zamtel more lucrative if the company retains control of its domestic and international infrastructure.
Zambian consumers are also, more likely to derive more mileage for their money spent on phone usage and the Zambian government would have cheaper means of addressing national security concerns if the company is retained as a single private entity versus unbundling.

3 comments:

Mbulawa said...

There is a very big difference between the two. The Big Three in Detroit are not owed money by the US govt. The opposite is the case with Zamtel. The Zambian govt owes Zamtel millions of dollars in unpaid telephone bills. Its biggest landline clientele are govt officials, military officials and other quasi govtal officials. All these people use telephone facilities more or less for free. We need to divorce Zamtel from govt.

Kashikulu said...

Mbulawa-
That is an important distinction but then the Zambian govt owns Zamtel. The Zambian government funded it's initial infrastructure deployment and has guaranteed loans from the Japanese for the purchase of NEC equipment and recently from the Chinese govt for the purchase of ZTE equipment.
This relationship, I guess is what festers govt default on telephone bills.
I also, look forward to the transfer of Zamtel to private ownership, maybe then the Zambian govt will pay their bill for telephone services on time.
Do you think the current Leadership will follow through with the privatization of the company, partial or complete, by end of June 09 as promised?

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