South Africa’s decision to block a $23-billion merger between MTN Group and India’s Bharti Airtel may indicate President Jacob Zuma favours more state involvement in the economy to protect jobs and local industries.
Bharti and MTN abandoned talks after the deadline for an agreement expired on September 30. Bharti said the structure of the deal failed to get approval from the South African government.
Zuma, who was swept into office in May with the backing of labour unions, is under mounting pressure to stem a slump in manufacturing output and the loss of tens of thousands of jobs as the economy suffers its first recession in 17 years. Until now, he has stuck to the business-friendly policies of the previous government, headed by Thabo Mbeki.
“If Thabo Mbeki represented deregulation and globalisation and the stripping away of any kind of protection in the market, then the Zuma government is much more prepared to intervene decisively in shaping and reshaping the economy,” said Nic Borain, a political analyst in Cape Town whose clients include London-based HSBC Holdings Plc.
The deal would have created a mobile-phone operator with annual sales of $20 billion and 200 million subscribers from Johannesburg to Mumbai. The rand, which rose 11 per cent against the dollar in the days after the two companies announced they were in talks on May 25, fell 3.6 per cent in the past two days.
Shares in MTN, Africa’s biggest wireless operator, rose 1.4 per cent to 130.83 rand as of 9:41 am in Johannesburg, after adding 5.6 per cent yesterday as investors, including Cape Town-based Coronation Fund Managers said the termination of talks ends “uncertainty.” New Delhi-based Bharti, India’s largest wireless operator, climbed 3.9 per cent in Mumbai yesterday. India’s stock market was closed today for a public holiday.
Protectionism
South African Reserve Bank Governor Tito Mboweni said yesterday that the country’s authorities “didn’t like” the merger. “MTN must remain a South African company,” he said. “It’s a very important asset. The chairman, the chief executive officer, the chief operating officer must reside in South Africa.”
Communications Minister Siphiwe Nyanda, appointed by Zuma in May, also said on September 30 that Johannesburg-based MTN should remain a South African company.
Lindani Mbunyuza, a spokeswoman for South Africa’s National Treasury, wouldn’t comment when asked whether the rejection of the deal was a sign the government was planning to intervene more in the economy. The Treasury said on September 30 it was supportive of local companies wanting to expand overseas.
Change of tack
In his almost five months in office, Zuma has resisted pressure from his union backers to increase spending and ease the focus on slowing inflation. Labour unions have opposed the government’s policy of inflation targeting, whereby the central bank is mandated to keep inflation within a range of 3-6 per cent by adjusting interest rates. Mboweni said yesterday he doubts the policy will change.
Zuma, who campaigned on promises to reduce poverty and create more jobs, is struggling to cut an unemployment rate of 23.6 per cent, the highest among 62 countries tracked by Bloomberg.
“In tough times, you do get a protectionist tendency,” said Jean-Francois Mercier, an economist at Citigroup in Johannesburg. Politicians “are much more jittery when foreign companies acquire major companies. There is a perception that in a crisis, a foreign company will just pack up, fire workers and go.”
Mines Minister Susan Shabangu said in July the government regrets allowing Anglo-American Plc to move its headquarters to London from Johannesburg because the company was built into a mining giant from assets in South Africa.
‘Foreign nationals’
Under Mbeki, South Africa’s biggest retail bank, Absa Group, was allowed to sell a controlling stake to London-based Barclays Plc, while Standard Bank Group, Africa’s largest lender, sold a 20 per cent stake to Industrial and Commercial Bank of China Ltd. Since 1994, SABMiller Plc, the world’s second-biggest brewer, moved its primary listing and headquarters to London, as did Old Mutual Plc.
The government may feel more responsible for MTN because the state-owned pension fund manager, Public Investment Corp, is MTN’s biggest shareholder with a 24 per cent stake. Until 2006, the state-owned transport company Transnet Ltd was also a shareholder.
MTN’s “growth has been facilitated also by government to a degree,” Nyanda said this week. “Because it is a South African entity” it would “be sad if we saw this entity move into the hands and management of foreign nationals.”
The company has more than 100 million customers in 21 countries in Africa and the Middle East.
Dual listing
South Africa had asked India’s government to allow MTN to have a dual listing, India’s Economic Times reported on September 15, citing two unidentified officials from India’s Finance Ministry. Indian law doesn’t permit dual listing, which allows companies to merge their business operations while keeping their existing shareholding structures intact.
“You tend to find with a lot of emerging markets that this issue of economic nationalism often takes precedence over basic corporate benefits,” said Stephen Davies, chief executive officer of Javelin Wealth Management in Singapore.
“The benefits to Bharti and MTN of this deal were very clear and from the point of view of creating a champion for emerging market telecoms, it would have been a perfect transaction,” he said.
