Media release: Another SOE disaster in the making, another addition to our R 46 billion irregular spending

In the wake of R 46 billion bombshell of irregular expenditure by state owned enterprises (SOEs) and government departments, the recently announced Information and Communication Technology (ICT) policy proposes yet another SOE . If implemented, it will be a massive single fund to be mismanaged and misappropriated. The ICT Policy White Paper released in October proposes a Digital Development Fund (DDF) to replace the existing Universal Service Fund (USF) which will be scrapped. “Like other nationalised funds, it increases incentives for corruption, partonage and political interference. The ICT Policy is reminiscent of apartheid-era nationalization and the creation of a mammoth lumbering dinosaur with devastating consequences for the mobile telecoms market”, said Free Market Foundation (FMF) executive director Leon Louw.  “There are many aspects to the policy, but this one, by far the most serious, has been overlooked by most critics” he said.

“Putting unelected politically appointed officials in charge of an enormous nationalised fund is like putting the foxes in charge of the hen house. It is another example of government’s attempt to seize private capital ostensibly for the public good. It envisages siphoning away resources from efficient management to bureaucratic incometencealong the lines of what is proposed regarding “national health insurance” (NHI). It would put private sector money into the hands of public officials ill-equipped by training and experience, incentives and inclination to manage it properly. The Road Accident Fund that became insolvent last month is one example among many.”

The existing USF, currently managed by the 
Universal Service and Access Agency of South Africa (USAASA), will be transferred to the DDF. Private sector funding will be increased from the current limit of one percent of licensees under the Electronic Communications Act and replaced with a levy of “at least” one percent with no upper limit. Some industry insiders think this will quickly rise to 3% putting essential infrastructure investment at risk and increasing data retail prices which are already under fire from consumers and media.

The White Paper says that the DDF will act as a mechanism to channel private sector funds towards the development of under-served areas. However, it might also manage the private sector infrastructure investment.

According to Dobek Pater, Managing Director at Africa Analysis, a leading pan African ICT Consultancy, if its function is limited to a coordinating role where investment should take place, then this should make the investment deployment more efficient. However, if the fund collects private sector funds from the infrastructure operators and then re-allocates those funds to those infrastructure build companies it selects, it may be problematic.

Pater said, “The biggest question is, in practice, how will the government ensure the financial efficiency and accountability of the Digital-DF, with which its historic precedents (USA, USAASA) struggled? Will merely reporting to the DTPS be sufficient? Should there be Parliamentary oversight over the new fund? There exists the danger that the DTPS will use the fund to gain political support by allocating funds to project sponsors who support the government.’

The ICT Policy White Paper proposes a fundamental shake-up of the telecoms sector with far-reaching implications for consumers and network operators. There are four key areas: (1) a significantly expanded government role, (2) fundamental interference with wholesale markets, (3) the development of a nationalised wholesale operator, and (4) key spectrum allocation subversion.

The FMF is currently conducting research and analysis of the policy, the prospective impact on consumer mobile data prices, and the consequences for an efficient functioning market. More state intervention is not advisable in an economy already reeling under the burden of excessive red tape, regulation and irregular government spending.

Further media updates will follow and a briefing is planned for Wednesday, 25 January 2017, at the FMF office. Details to follow.


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