ANDILE KHUMALO: Telkom beats SAA on development dividend as well
SAA's financial woes and the Treasury's rescue mission have attracted a lot of public interest. But what concerned many in the past week was the potential "putting good money after bad" when Telkom confirmed that the government was indeed considering the option of selling a portion or all of its shares in the company to fund a bailout of the carrier.
The government's 39% stake is worth R13-billion. The share price is up 234% since 2013. There is hardly any debate that the returns earned by the government from its investment in Telkom have been and are likely to be a lot more lucrative than those to be earned from SAA, if there are any at all.
Telkom has been the backbone of South Africa's telecommunications industry for many years. The appointment of Sipho Maseko as CEO and Jabu Mabuza as chairman of a new board were the most significant changes in recent history for the company. Despite all the challenges it faced five years ago, it is back into growth mode in revenues and profits. Other than in 2013 and 2014, Telkom has been paying dividends consistently.
In the 2017 financial year, the government received R874-million in dividends, and this is only expected to grow over time. Not once has Telkom been bailed out by the government.
In contrast, SAA's many bailouts over the years run into tens of billions of rand.
So is it rational to sell a business that pays you almost a billion in dividends to sustain one that consistently costs billions?
In the wise words of the popular philosopher Shawn Carter, also known as Jay-Z, "Men lie. Women lie. Numbers don't."
On the commercial score, Telkom wins hands down.
The less explored debate is the issue of a developmental agenda. Every time one asks the government why it insists on a wholly owned SAA, the answer is about the developmental dividend.
However, when you are forced to sell another asset to save SAA, surely you must assess both the commercial and developmental returns and losses?
From which asset are ordinary South Africans likely to derive the highest developmental dividend?
Zwelake Mnguni, founder and chief investment officer at Benguela Global Fund Managers, firmly believes there is a lot more value for South Africans in Telkom than in the airline.
"Even at its best moments, SAA can only benefit a few South Africans who are fortunate enough to, first, have a job, and, second, to have one that pays them enough to afford a flight.
"To put it into perspective, in the 2015-16 financial year, SAA carried 6.9 million people. If we had to be kind and assume that 80% were South Africans, this would be the equivalent of 10% of our population.
"And, of course, you don't need a wholly government-owned SAA to connect our country to the world and facilitate trade."
In contrast, a Telkom with the government as the largest shareholder is very beneficial. The internet is slowly making its way into Maslow's hierarchy of needs, version 2.0.
It has been proven time and again that access to affordable internet has an exponential effect on GDP growth and the eradication of inequality - the two things we desperately need in South Africa.
Imagine what Telkom could do, in partnership with the government, in facilitating better connectivity for rural communities. Telkom's fibre offering could be engineered in ways that ensure access for the poor without compromising profits in lucrative towns and cities.
"Not many of us are aware that the two telecommunications giants MTN and Vodacom were hugely subsidised by Telkom in the early days as part of the government's effort to bring mobile telephony into the country," says Mnguni.
"Telkom agreed to be paid less for calls landed on their network than what they paid the mobile operators to land calls on mobile networks. The subsidy came in the region of R3.5-billion per annum in 2006.
"In addition, it may not have occurred to many South Africans that their ability to use ATMs for a very long time rested solely on Telkom's ... infrastructure.
"Today, this immense contribution by Telkom has taken a shape of its own with a mobile penetration rate of 160%, which means there are 160 cellphones for every 100 citizens of South Africa.
"SAA would struggle to compete with such developmental impact, let alone other airlines."
If the government is still not convinced, I would recommend President Jacob Zuma put in a call to a good friend of South Africa, the founder of Virgin Group, Richard Branson, and get clarity on what he meant when he said: "If you want to be a millionaire, start with a billion dollars and launch a new airline."
• Khumalo is chief operating officer of MSG Afrika and presents 'Power Business' on Power98.7 at 6pm, Monday to Thursday